Malik and Awadallah: Economic Fragmentation of the Arab World
At the recent CFA Institute Middle East Investment Conference, hosted in the modern economic miracle that is Dubai, Adeel Malik from the University of Oxford and Bassem Awadallah, founder and CEO of Tomoh Advisory, analysed the deep roots of the relative economic failure of the wider Arab world. Their diagnosis and proposed reform held the audience spellbound. Against the backdrop of the Arab Spring and the tragic implosion of Syria, their message held an urgency.
Their argument, based on their paper “The Economics of the Arab Spring“, is that the political economy of the Middle East and North Africa (MENA) region has allowed the centralisation of much political and economic power, leading to a weak private sector, low productivity, and anaemic intra-regional trade. Combined with a population spurt, this mix has led to high youth unemployment and the pressure for social unrest.
Malik and Awadallah believe the source of the malaise lies in the centralisation of the state, with its interests served by a strong public sector, and that the state became the “provider of first and last resort” for food, housing, utilities, and jobs. A stream of external revenues through oil, aid, or remittances funded such a structure, with little need to develop the private sector. They stated that these rents have distorted economic incentives so that returns to patronage are higher than returns to production.
While such a situation was maintained for a long time, they argued that a new factor has made it more precarious. The resources of the state are being stretched by a fast growing population. The public sector cannot create the extra jobs needed, nor provide the expected subsidies. As a result, they think the prevailing economic model is not sustainable.