Insufficient economic growth drives challenges of Middle East

UCLA International institute, June 20, 2016 — The 11th annual “Enriching the Middle East’s Economic Future Conference,” cosponsored by the UCLA Center for Middle East Development (CMED) and the Ministry of Foreign Affairs of Qatar, was held in Doha from May 30 through June 1. The annual gathering brought together some 300 participants from 68 countries — including policy makers, businessmen, development experts and leaders of nongovernmental organizations — to consider barriers to economic development in the region and their possible solution.

Panel discussions covered a wide range of topics feeding into economic issues, from great power politics to the One Belt, One Road initiative of China. Many participants from the region argued that inclusive economic development was the region’s most urgent priority — more urgent even than defeating ISIS and ending the Syrian civil war. Others argued for the centrality of rebuilding the body politic, but conceded that the process of rebuilding coherent states in the Middle East would be a long-term project.

Speakers and participants alike pointed to the breakdown of the social contract in the Middle East and North Africa (MENA) caused by decades of declining economic performance; a demographic “youth bulge”; rising aspirations for political participation among the Arab middle class; weak political and economic institutions; lack of a true private sector; a technological revolution that is eliminating jobs as millions of youth enter the labor market; and the need to diversify energy-sector-based economies.

Economic reform can no longer wait

A combination of technological change, rapid population growth (the total population of MENA grew by over 100 million between 1990 and 2008), high unemployment among youth (27 percent) and women (45 percent), a weakened middle class and a crash in oil prices have made economic reform in the region imperative.

A number of speakers emphasized that low oil prices were here to stay, citing the rise of oil production in the U.S., reductions in energy consumption and a focus on energy efficiency in the West, and the growing price competitiveness of alternative energy. Hani Findakly of the Clinton Group remarked that the restoration of reduced subsidies and cuts in public spending by governments in the region were a step in the right direction. However, he cautioned that diversifying economies away from oil and energy production required time and good execution.

And while technological advances and automation — what some participants called a fourth industrial revolution — is currently doing away with many professions, Internet- and social media-based applications are offering women in the Middle East a flexible way to join the workforce.

A Chinese expert stressed that successful development required nations to create clear plans for industrialization by sector, or clusters of sectors, and the infrastructure needed to support them. Numerous actors must be involved in developing plans to reorient economies away from extractive industries, said Gerhardus van Biljon of Business Partners Limited (South Africa). These actors include governments, businesses, labor organizations, nongovernmental organizations and international development institutions. “If it is not a team effort, if you don’t sit around the table and work a plan… if the government is not invested in the plan, you [won’t be able to generate] medium-and large-scale businesses,” he said.

Creating a thriving small and medium enterprise (SME) sector and the infrastructure that supports it will require producing a business culture and encouraging entrepreneurship from an early age; changing the mindsets of youth about what constitutes desirable employment; reforming education systems in favor of greater vocational training and lifelong learning opportunities; establishing legal frameworks; facilitating access to capital; creating mentorship networks; and fostering greater female employment. As one speaker noted, “Young people need to seek education not to get a job, but to create their own jobs.”

In the view of Abdulaziz al Loughani of the National Fund for SME Development (Kuwait), the most essential imperative is to “make sure the private sector participates in the design of initiatives for entrepreneurial] programs.” Florence Musiime Umurungi of Sinai Suites Ltd (Rwanda) implored governments both to include youth in the formulation of their economic development visions and to link job creation and training programs to the industries in which they planned to invest. Another participant stressed the need for countries in the region to reduce tariffs and create a common market — both within individual countries and across the Middle East.

An International Monetary Fund expert argued that fiscal policy should be used to address economic and income inequality in MENA, as increased access to finance would help develop jobs and diversify economies. Januario Mucyo of the Bank of Kigali (Rwanda) concurred, noting that banks in Africa tended to concentrate on corporate banking instead of SME lending. Hani Findakly (Clinton Group) recommended that land policies be used to address the widening gap between rich and poor in the Middle East, as land ownership and the appreciation of holdings was the largest cause of that gap.

Increasing employment among women. Prior to the revolution of 1974 in Portugal, the situation of women in that country was very similar to that of women in MENA today, said Joao Domingues of the Portuguese Institute of International Relations and Security (Portugal). “A woman was expected to be a loving mother and devoted wife. She was raised to be an obedient daughter, sister and wife…. Women could not vote, be a diplomat, serve in the military, be a judge or join the police. To work or leave the country, they needed their husband’s permission.”

What changed that situation, he said, was a long colonial war in which many young men were killed and women became empowered to support themselves. Rather than focus on a top-down, big-picture approach, he recommended instead that policy makers in MENA focus on microeconomic interventions that empower the talents and confidence of individual women through skills training and education, including investing in kindergartens and other services that would enable women to enter the workforce.

Strategic picture: Great powers retreating, regional powers at odds

Although many Middle East participants perceived a departure of the U.S. from the region, experts from around the world insisted that the U.S. remained a great power with long-term interests in the area, but would pursue them in a rebalanced way with fewer resources.

Steve Simon, former senior director for MENA on the National Security Council, claimed that the U.S. was reverting to an old pattern of infrequent and limited intervention in the region. The length of the wars in Afghanistan and Iraq obscured this traditional foreign policy posture and makes current American foreign policy in the region look new, he said. The cost of the two wars over their lifecycle —estimated by Joseph Stiglitz and Linda Blimes as between $4 and $6 trillion, all of it borrowed — “has had a chilling effect on what the U.S. is willing to do now,” continued Simon. A realist perspective with more careful consideration of costs and benefits is leading U.S. foreign policy to put a strong emphasis on Asia, he continued.

At the same time, traditional U.S. allies such as Gulf States and Israel, are diverging from U.S. interests in an evolution that the U.S. cannot control. Simon predicted that the United States would accordingly “triangulate” in the new cold war in the region, cooperating with Iran and the Sunni states where it suited U.S. interests, and ruling out any large U.S. intervention.

Russian participants disagreed about whether Putin intervened in Syria to defend traditional Russian interests in the region and prevent the dissolution of the Syrian state or to establish itself as a force to be reckoned with in the eyes of the next U.S. administration, which it anticipates will be tougher. Combating ISIS, said Irina Zvyagelskaya of the Institute of Oriental Studies in Moscow, remains important for Russia, which seeks to keep the group from spreading by working with strategic allies. In either case, Russia’s intervention has made it an important player in the resolution of the Syrian conflict, apart from its dispute with the West over Crimea and the Ukraine.

Europe, meanwhile, remains focused on its economic problems and the refugee crisis, unable to mobilize or implement a clear EU foreign policy for the Middle East, said Ambassador Marc Otte of the Egmont Institute (Belgium). In his eyes, the EU has the choice of dialogue or confrontation in the region and will likely have to choose both. More is at stake in the Middle East than simply shifting alliances among regional and outside powers: a battle of ideas is underway regarding the best way to achieve stable governance, observed Otte. With Europe weakened by the economic and refugee crises, together with growing Islamophobia and the rise of nationalism, the model of liberal democracy and a market economy has been called into question.

China remains focused on developing economic relations, pursuing its One Belt, One Road infrastructure and cultural exchange initiative and supporting stability in MENA. It does not seek to play a security role in the region, said Bingbing Wu of the Institute of Arab-Islamic Studies in Beijing.

At the regional level, Saudi Arabia remains focused on restoring security in Arab countries, fighting both Daesh and Al-Queda in the region and controlling Iran, together with preventing interference in individual countries. Iran, according to Kayhan Barzegar of the Institute for Middle East Strategic Studies (Teheran), has adopted a multilateral approach that seeks to involve all countries in the region, big and small, in the resolution of conflicts and challenges. Despite the recent nuclear deal with the U.S., he contended that Iran did not seek increased regional cooperation with Washington, saying that such cooperation would benefit only the U.S.

In Turkey, public opinion views the country’s involvement in Syria as a disaster, said Suat Kiniklioglu of the Center for Strategic Communication. As a result, there appears to be popular support for a return to Turkey’s more traditional, non-interventionist foreign policy in the region. Egypt was strikingly absent from discussions at the conference, causing one participant to wonder whether the country remained the most important player in the Arab world.

Bingbing Wu and Sean Cleary of Strategic Concepts (South Africa) both argued that a new strategic vision for the region could unite global and regional powers in a collaborative framework. Such a framework, said Cleary, would involve “regional powers thinking about how to assemble both a regional economic collaboration and a regional security framework that defines and puts into place limits and norms of interstate interaction on an ongoing basis.”

ISIS. Discussions of ISIS revealed that countries in the Middle East are still struggling to define it the movement accurately in order to know how to defeat it. “This notion that we have taken so long to defeat ISIS reflects a fundamental misunderstanding of this type of war,” said Haroro Ingram of Australia National University. He argued that the group was simultaneously a state, an insurgency waging guerilla warfare and a terrorist group — depending on where it operates. Murhaf Jouejati, a professor at the Emirates Diplomatic Academy, offered an alternative formulation, claiming that ISIS was “a state, a terrorist organization and a large oil company.”

Although the revenues that ISIS derives from oil are decreasing and may no longer constitute the group’s most important revenue stream (now derived from local taxes on everything imaginable), there was consensus that oil sales remain the group’s most continuous revenue source. Several participants agreed that the bulk of illegal oil sales by ISIS are purchased by the Assad regime at below-market prices, although smugglers also transport oil to Jordan and Turkey as well. Jouejati recommended that the battle to reduce the group’s oil revenues be refocused to address the black market, truckers, and smugglers.

Refugee crisis

Greek and Middle Eastern participants argued that most refugees will stay permanently in their current host countries; consequently, those countries reorient their policies toward integration. As Harry Theocharis, member of the Hellenic Parliament in Greece, said, “We should start thinking about this issue not as a crisis, but as a permanent state of affairs. Europe needs to combine European values with reality: no country can be left alone with this issue, either financially or politically.”

Theocharis emphasized that the two existing models of integration in Europe (French and British) had both produced alienation in second- and third-generation immigrants, leaving them ripe for radicalization. A new approach to integration is needed, he insisted. Suat Kiniklioglu (Center for Strategic Communication, Turkey) estimated that the number of refugees in Turkey, now roughly 3 million, would grow to 5 million in three years.

Participants from countries of the Middle East, where the vast majority of refugees from the region are located, were impatient with European concerns. As one remarked, “The main cause of the refugees is the conflict of the interests of the superpowers and Europe is one of them. If you are the root cause of the problem, you should bear the cost and the consequences.”

Shanker Singham of the Legatum Institute in the U.K urged the donor community to focus on creating economic zones adjacent to Syria in countries where many refugees are located. Donors could establish the preconditions for entrepreneurship and economic activity in these zones, he said, so that the private sector could then step in. Based in cities, the zones would benefit the countries in which they are located, helping local residents at the same time that they provide Syrian refugees work. “It is,” he insisted, “incumbent on those who believe in a more liberal order to enable economic activity and jobs for people, because if we don’t do that, we are looking at a bleak future.”


Contrasting views of regional security on the part of regional powers such as Iran, Saudi Arabia,and Turkey, and among outside powers such as the United States and Russia, continue to complicate effective resolution of the Syrian civil war and the chaos in Libya, as well as crises in countries like Lebanon and Yemen. In terms of the great powers, one thing is clear: long-term, intensive interventions on the ground have become too costly for the West (or even Russia) to consider repeating. The Middle East will largely be on its own in resolving its security and its economic development challenges.

Many participants agreed that the countries of the Middle East must take responsibility for diagnosing their problems, instituting changes and building a collaborative framework. As Moroccan diplomat Youssef Amrani of Morocco said, “We in the South need to do our own work: we must build up strong states and democracies and meet the expectations of our young generation.” Amrani insisted, however, that the MENA region could best tackle these challenges together in a cooperative framework that addressed issues of trade, security and countering the jihadist narrative of ISIS.

Despite the magnitude of the challenges facing the region — educational, economic and political reform, among them —it was heartening to see widespread willingness among participants to address them, armed with proven best practices.

If economic growth is essential, many participants made clear that so, too, is democracy. Said Amel Azzouz of the Ennahdha Party of Tunisia, “The social contract [between citizens and the government] can only be achieved when representative democracy is deployed.” She emphasized the priorities of improving accountability, fighting corruption and guaranteeing social inclusion and the rule of law. Consensual dialogue is also essential, she stressed, for building a new socioeconomic model that can create jobs and give dignity to young people. Ersin Kalaycioglu of Sabanci University (Turkey) warned, however, that without an independent judiciary to act as a watchdog, there would be no democratic development in the region.

Many voices urged greater regional cooperation at the conference, seemingly making that goal more than ever a priority for the Middle East. At the very least, the countries of MENA will have to be vigilant in taking advantage of the latest technology and educational tools to expand job opportunities and new industries. Without action in this direction, current conditions in the region will only get worse.

* All photos by Peggy McInerny/ UCLA.

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