IMGXYZ2903IMGZYXAs protests and political transitions continue throughout the Middle East and North Africa (MENA), Carnegie hosted a conversation with Mustapha K. Nabli, the newly appointed governor of Tunisia’s central bank and former chief economist of the Middle East North Africa region at the World Bank. Nabli discussed the role of the economy in Tunisia’s uprising and assessed the policy options going forward for MENA countries. Masood Ahmed, director of the International Monetary Fund’s Middle East and Central Asia department, also participated in the discussion. Carnegie’s Uri Dadush moderated.
Three Ingredients
Nabli described three factors that fueled Tunisia’s social unrest:
- Corruption: While corruption has been a problem for the past fifteen years, it recently reached historic levels, Nabli said. Increased media coverage made the problem more apparent.
- Unemployment: The lack of opportunities for university-educated citizens also reached unprecedented highs, leaving people with no hope for the future, Nabli said. The Great Recession, which slowed Tunisia’s growth by 1 to 2 percentage points, only exacerbated the problem.
- Technology: After getting a late start in Tunisia, modern technology spread rapidly; cellphone penetration, for example, is now close to 100 percent. While technology did not cause the unrest, it helped it spread by essentially eliminating the cost of collective action.
Ahmed suggested that rising food and fuel prices may also have been contributing factors, particularly in other countries. Nabli disagreed, stressing that dignity, respect, and fairness were the protesters’ main concerns, as exemplified by the outrage over corruption and lack of voice. Nabli cautioned against seeing pocketbook factors as overly determinative, but conceded that, had Tunisia matched China’s GDP growth over the last ten years, many young citizens would likely be employed right now. Without high youth unemployment, even unprecedented corruption and access to modern technology would likely have failed to spark the protests.
The ingredients of corruption, high unemployment, and spreading technology are present across the region. However, Ahmed and Nabli agreed that every country’s situation is unique, making any predictions about the spread of the turmoil impossible.
- Nature and Degree: The speakers agreed that there are as many differences as similarities across the region. Youth unemployment, for example, will likely actually be worse in other countries, as Tunisia is ahead of the MENA curve in its demographic transition—labor force growth will slow in the next ten to twenty years. Political systems and expectations also differ, as do the forms of corruption prevalent in each society. The level of government spending available—which diminished after the Great Recession—has also shaped the different governments’ reactions to protesters’ demands.
- Common Themes: At the same time, Ahmed pointed to several common themes that may give rise to further protests across the region. These include disillusionment and hopelessness among the region’s youth—less than half of whom are employed—and the uneven access that small enterprises have to finance and to other opportunities.
Risks on the Horizon
Though many observers—from policy makers to analysts and investors—are concerned about the region’s short-term prospects, the panelists agreed that domestic and international attention should shift to planning for the medium and long term.
- Immediate Risks: Nabli argued that Tunisia has short-term risks under control. The country’s external balance is strong, its foreign reserve holdings are sufficient, and the security situation is returning to normal; in addition, national debt is expected to be repaid on time. Ahmed noted that the economy will almost certainly be affected in the short run, but the effects should be recognized for what they are: consequences of events that have already happened.
- Within the Year: The biggest threat facing Tunisia’s economy is a negative feedback loop between the economic and political situations. If production does not bounce back, external and fiscal pressures could emerge in about three to six months, right when elections are expected to occur. To avoid this, Nabli stressed that the country must go back to work and return economic activity to normal levels. Meanwhile, outside of the region, the price of oil is the biggest worry. But, even with the recent events in Libya, significant unused capacity in countries like Saudi Arabia could keep the impact relatively modest, Ahmed said.
- Long-Term Outlook: Across the MENA region, the challenge for policy makers now is to address the short term while building to the long term. Ahmed argued that current policy does not address the bigger issues that keep growth in the region low compared to that in other developing areas—namely, state involvement in the private sector and a mismatch between the skills schools teach and those that jobs require.
International Role
The speakers also offered suggestions for how organizations and countries outside of the region can best help the Middle East.
- Don’t Do Harm: According to Nabli, the best thing international organizations can do is continue business as usual, keeping ratings stable and costs for financing trade and debt unaltered. He is working with the IMF and other European and Arab funds on financing and expects private-sector involvement as well. Politically, he expects support for developing transparent elections, political competition, and the media.
- IMF and World Bank: Ahmed argued that the most important takeaway for the IMF and World Bank is that , to be sustainable, reforms must be inclusive and transparent, and markets must be contestable. In Tunisia’s case, for example, Nabli explained that economic reforms might not follow democratization because corruption gave many reforms a bad name. In addition, the international organizations—though trapped by their need to work with governments—should show more awareness of, and sensitivity to, the political situations in the countries where they work.
- Migration to Europe: Europe should put the issue of migration back on its cooperation agenda with MENA. Reopening migration would be a win-win situation, helping to moderate labor force growth in MENA and easing the demographic transition in Europe.
Dadush concluded that, try as one might to identify the economic causes and consequences of the turmoil, the region is clearly in the midst of a political—and not an economic—transition. The political transition holds both large risks and great promise for economic reform.
