Sunday, September 25, 2011

GCC Investment Can Lead Post-Revolution States To Stability

One cannot separate political rights from economic rights; there is an urgent need to take real steps to address chronic job shortages and lack of short-term liquidity in post-revolution economies.
By Majid Jafar

                Leaders of the Gulf Cooperation Council (GCC) countries
As revolutions and unrest sweep the Arab world, commentary centres on a struggle for freedom and political change. These elements do come into play, but what lies at the core of these revolutions is a chronic and widening deficit of economic opportunity, combined with the demographic time-bomb of an exploding youth population. The stark statistic is that 100 million jobs need to be created in the Arab world in the next two decades alone - more than was created in the whole of the last century.
Past attempts at economic reform in many of these countries achieved certain success in terms of headline economic growth, but incomplete reforms and corruption led to only a small minority feeling the benefits. This combined with persistent inflation, especially with food prices rising 30 per cent last year, to create worsening inequality. In addition, education systems have failed to provide the skills needed by the evolving job market. Reform in all these areas is still needed.
The sad reality is that the basic causes that drove the revolutionaries in all these countries - corruption, economic stagnation and lack of job opportunities - are likely to get much worse in the short term. Investment has frozen, economic growth is slowing and unemployment will see a sharp rise.
And people's level of expectation is high, with many hoping that because a regime has toppled, jobs and housing will become available immediately. This was seen in Cairo when the public housing directorate was mobbed by hopeful applicants the day after Hosni Mubarak's fall.
Egypt in particular is an important case as the most Arab populous country. Now that the euphoria of Cairo's Tahrir Square has died down, we face an urgent reality: the critical tourism and construction sectors have ground to a halt causing a liquidity crisis. And 700,000 jobs per year must be created in Egypt, just to keep unemployment from rising. That pace of growth is just unrealistic. If a solution is not found soon, the whole region risks instability or even secondary revolutions.
To take a historical perspective, after the Second World War in Europe, the United States established the European Recovery Plan, known as the Marshall Plan, to rebuild western Europe's battered economies and prevent them falling to communism. The plan was in effect for just four years from the end of 1948, but saved Western Europe with the US investing $13 billion, a full 5 per cent of annual US GDP at the time, equivalent to over $700 billion (Dh2.6 trillion) today. The economies of the Arab world are not as destroyed as Europe's were, but the situation and needs are similar.
Immediate "make work" infrastructure projects are desperately needed to employ large numbers of workers, such as construction of highways and bridges, and large rural or agricultural projects. The private sector could implement them, but the funding needs to be provided.
Yet western governments today are all struggling with their own domestic economic crises, and are unable or unwilling. Instead, the GCC states can act during this time of crisis and unrest. This is not charity, but very much within the GCC's economic and political interests.
The leadership of the Arab world in the 21st century is already shifting from Egypt and Syria towards the GCC. It is Saudi Arabia that represents Arab countries at the G20, and the cities of the GCC are already the most advanced in the Arab world.
The Arab Spring has already resulted in a sustained increase in oil prices of at least $30 per barrel. Over a period of just one year, this will result in an additional income of over $250 billion per year to the GCC states above what had been budgeted. A portion could be set aside in an infrastructure fund designed to inject liquidity into Arab economies that have suffered unrest. International institutions such as the World Bank and IMF could assist in designing the governance and mechanism of the fund, but the leadership and decisions should be kept within the GCC.
The demonstrations and civil conflict attract the attention today, but we must not forget that the chants in Tahrir Square for "bread and dignity". One cannot separate political rights from economic rights; there is an urgent need to take real steps to address chronic job shortages and lack of short-term liquidity in post-revolution economies.
-This commentary was published in The National on 25/09/2011
-Majid Jafar is the chief executive of Crescent Petroleum and a board member of the Sharjah Chamber of Commerce and Industry

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