Paper
Ibrahim Saif, Ahmed Ghoneim
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Source: Getty
In The Media
The Private Sector in the Arab World: A Positive Role Needed to Dispel Negative Perceptions
Practical solutions are needed to balance a productive, profitable private sector in the Arab region with the interests of a society whose burdens cannot be shouldered by the state alone.
By Ibrahim Saif
Published on Sep 13, 2011
Source: Al-Hayat
Regardless of their accuracy, these negative impressions can be summarized in a few points, foremost among them that the private sector, otherwise known as Arab "capital," is cowardly and concerned only with making a quick profit, and is therefore not interested in diversifying the economy, creating productive job opportunities, or in what is known as corporate social responsibility.
There is also an impression that the private sector in the region safeguards its interests through unofficial relationships with government bureaucracies, and is therefore inscrutable to the public, and that many of its deals and profits are the fruit of illegitimate alliances made possible by ambiguous relations between the two sectors whose dealings are often murky.
These relations are seen as part of an unwritten contract between corrupt bureaucracies and equally corrupt businessmen, which has led to the creation of a market that allows for only a limited number of producers who are able to exploit the markets, thus ensuring high profit margins.
This impression is reinforced by the increasing share of national income captured by corporate profits in many Arab countries over the past decade. Official data released by countries like Egypt, Jordan, and Tunisia appears to support this view. Similarly, the contribution of small- and medium-sized sectors in these economies is limited due to their inability to compete with larger sectors.
Taken together, these impressions lead to the conclusion that the private sector is concerned with economic rather than political liberalization. Democracy and transparency would eliminate the gains by which the private sector fortifies itself, as political openness makes "client capitalism" difficult, and so alliances were established between large sections of the business community and security bodies under the pretext of maintaining stability and achieving economic growth before beginning the process of political liberalization.
But what has changed is that this pattern of relations is no longer tenable. The results of this corrupt partnership have already played out in Egypt and Tunisia, while further evidence of its failure can be seen in certain countries in the region such as Morocco and Jordan. It is important now to find a new model for this relationship.
But before introducing a new system that will, by its establishment, dispel many negative perceptions, we should be careful to differentiate between the different types of actors within the private sector. There are independent entities within the private sector that have invested and struggled and have not accumulated their wealth through illegitimate ties with corrupt governments. The truth is that this section of the private sector, which is independent and adventurous in the true sense of the word, will be expected to lead the development process through the coming phase.
States and civil society organizations would be making a mistake if they continued to generalize based on these negative impressions about all private sector leaders and private Arab capital. It will not be governments that undertake new investments, despite populist demands to that effect. We must not forget the negative consequences of previous government experiments in the business sector. But what is happening now in the Arab world, especially in Egypt, is a campaign to demonize the entire private sector, and this is wrong. Reassuring investors does not mean complacency in the fight against corruption.
There is no doubt that the experiences of the past two decades of so-called economic reform do not serve this last point. The privatization of public institutions proved disastrous, and only deepened existing income gaps as state monopolies were merely transferred into private hands. This process is considered the primary reason for the negative impressions we have touched on here.
In order to transition to a new stage, there are a number of things that need to be improved. First, the private sector should strengthen its network of official relations with governments and conduct these relationships publicly through official institutions while openly protecting its interests. The private sector may form political parties to clearly articulate the concerns and problems it wishes the government to address. It must also demonstrate its commitment to social responsibility as the private sector does in developed countries, where it is considered a matter of paramount importance.
The private sector has nothing to lose by addressing sensitive subjects such as taxes, income inequality, financial incentives for managers, and the principles that government its dealings. In the region's new political reality, discussion is welcome, but foot-dragging will not be tolerated.
Governments and local media outlets in the Arab region must avoid generalization when talking about the private sector, and instead put forth practical solutions for balancing a productive, profitable private sector, and the interests of a society whose burdens can no longer be shouldered by the state alone. All this amounts to a new contract between an independent private sector and governments that fulfill their supervisory roles rather than hindering investment and inventing obstacles to the benefit of a small group of bureaucrats who have illegitimately monopolized economic decisions for a long time and contributed to the system of corruption under the pretext of defending public interests. This challenge will not be easy; the bureaucracy is organized and knows exactly how their interests will be harmed, which means that reform, in this instance, can only come from the top.
About the Author
Ibrahim Saif
Former Senior Associate, Middle East Center
Saif is an economist specializing in the political economy of the Middle East. His research focuses on international trade and structural adjustment programs in developing countries, with emphasis on Jordan and the Middle East.
- The Private Sector in Postrevolution Egypt
- The Economic Agenda of the Islamist PartiesPaper
Ibrahim Saif, Muhammad Abu Rumman
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