Tag: Economy
It’s the region, stupid
The Middle East suffers from a whole range of problems. War and conflict are besetting wide parts of the region and have caused massive destruction as well as displacement in several countries, including Syria and Yemen. Climate change has brought about enormous environmental degradation such as desertification and water scarcity. At the same time, stressed domestic economies are increasingly unable to provide job opportunities for the region’s disenchanted youth. The Middle East faces enormous challenges that transcend borders and hence require answers that narrow-minded national policy making is no longer able to provide. Indeed, the region is today in dire need of regional responses.
On March 7, the Middle East Institute presented a roadmap of how future cooperation should look like in the Middle East. Resulting from Track 1.5 initiative involving current and former officials and senior experts from across the Middle East as well as from China, Europe, Russia, and the United States, the so-called Baghdad Declaration outlines 12 good neighborhood principles for the region. The discussion featured three major participants in the Middle East Dialogue. Naufel al-Hassan, deputy chief of staff to Prime Minister Haider al Abadi of Iraq, Abdullah al-Dardari, who serves as a senior advisor on reconstruction at The World Bank, and MEI’s senior vice president for policy research and programs Paul Salem provided their perspective on the Baghdad Declaration and the Middle East’s future. A full recording of the event is here:
Regional integration is already prevalent in the Middle East. Abdullah al-Dardari stresses that, excluding oil and gas, intraregional trade accounts for some 40% of total trade in the Middle East; taking the informal economy into consideration, this figure might even reach 60%. Moreover, the Middle East has the world’s highest level of intraregional level of remittances. Paul Salem underlines this observation and adds that only because of the high level of existing regional interdependence and interaction conflicts were able to spread that easily across the Middle East. However, the integration of today is neither well-structured nor reflected in the political relationships between Middle Eastern states.
The region is still in dire need of better cooperation among its members. Al-Dardari argues that the model of country-based economic growth has reached its apex in the Middle East. Self-sustained economic development is no longer possible as national labor markets, productive bases, and consumption levels have become too narrow. Instead, only regional economic integration and the resulting creation of an open regional market can attract extensive investment and the money needed to rebuild war-ravaged countries: an estimated one trillion dollar of assets has been destroyed since 2011. Naufel al-Hassan also points out that political and environmental challenges such as transnational terrorist networks and water scarcity go beyond the problem-solving capacities of single states and require common answers. In the same vein, the region’s governments can only bring back hope to the Middle East’s youth when they collaborate on providing decent job opportunities. A new regional framework is hence not an option, but a necessity.
Although the contemporary conflicts in the Middle East seem to make increased regional cooperation almost impossible to achieve, change is possible. Salem stresses that other regions of the world were able to transition from a conflict system to a stable order. Not even a century ago, Europe suffered from two wars which much exceeded the level violence that has beset the contemporary Middle East. Yet Europe has been able to overcome its international divisions and conflicts and has established a strong system of cooperation, the European Union. At the same time, the Middle East has proven to be able to move beyond regional standoffs, as the surmounting of rivalry between Egypt and Saudi Arabia of the 1950s has demonstrated. We can thus be hopeful whereby al-Hassan emphasizes that a new stage of integration has already begun. To defeat ISIS, the region has displayed a new level of cooperation, which can serve as a blueprint for future efforts to unite in face of political, economic, and environmental challenges.
A better future is hence possible for the Middle East. The Baghdad Declaration offers a distinct vision that can show the path towards deeper integration in the region. When this transition will materialize will however depend on the readiness of the region’s current leadership to cease hostilities and acknowledge that small-minded national agendas cannot act as a remedy. For the sake of the Middle East and its people, this change of mentality and political outlook should occur soon.
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War profits
Last week at the Middle East Institute, Tim Eaton of Chatham House defined “war economies” simply as an economy during wartime, including but not exclusive to the parts of the economy that directly fuel conflict. Eaton was joined by fellow Chatham House experts Lina Khatib and Renad Mansour on October 19 in a panel on “Wartime Economies in the Middle East: A Look into Libya, Syria, and Iraq.” The Middle East Institute’s Paul Salem moderated.
Eaton provided an overview of the economic situation in Libya, identifying four modalities: individuals with goods to sell, those who generate rent money, those who prey on state revenue, and those who receive salaries from external backers. Concerning those who sell goods, one of the main avenues for such activity has long been the smuggling of subsidized products, an industry which persists post-revolution. Criminalized trade, especially in drugs, has also been a major source of revenue, generating $400-$500 million per year. Additionally, since 2013, the movement of people has been included in this category. The biggest industry, however, is still oil and fuel smuggling, which generates about $2.5 billion.
Rents are another avenue for certain individuals, the money coming from the establishment of checkpoints and the control of territory. This has led to extortion through blockades imposed on roads and oil fields, with such blockades costing the state over $160 billion in the East alone. The state has also been experiencing losses due to those who are able to “prey upon state revenue.” Since 97% of revenue comes from oil and gas trade, Eaton considered this a critical area from which revenue has been taken. These losses have also been augmented due to the discrepancy between the US dollar to Libyan dinar exchange rate both in the official sector, where it is 1.4 dinars, and in the black market, where it is 8 dinars. Those with the means to buy products at the official rate and sell them in the black market have seen major profits.
Eaton emphasized that all actors in Libya have been benefiting from the conflict, finding ways to take advantage of the country’s situation. Since armed groups have been able to obtain salaries as a result of the conflict, this has encouraged them to maintain the status quo. There is little incentive to find a solution to the conflict or undergo a political process. On a state level, economic difficulties, as well as “administrative chaos” and questions of legitimacy, have hindered the functioning of the three most important state institutions: the National Oil Company, the Central Bank, and the Libyan Investment Authority.
Mansour focused on the effect of economic factors on the survival and functioning of ISIS in Iraq. The international community has tried military and political solutions. The one solution most overlooked has been the economic solution. The key concept here, according to Mansour, is that organizations and individuals are opportunistic: they go where jobs and money are available, such as ISIS. In looking for ways to defeat ISIS, creating alternatives that would allow potential members to survive economically is important. ISIS has three key sources of revenue: trade (goods, oil, antiquities, etc.), fees (through taxation, rents, and licenses), and state resources. Looking to the future, ISIS is now investing in “legitimate industries” such as hotels, pharmaceuticals, and currency exchanges, to maintain their economic power and facilitate a future revival. In response, Iraqi state institutions and international actors have been working on limiting ISIS’s influence. Their flaw, according to Mansour, has been that none of these actors are working together.
Khatib gave an overview of the war economy in Syria, grouping the different areas of the country into three categories: areas under the control of Hay’at Tahrir al-Sham, areas besieged by the regime, and areas under regime control. Hay’at Tahrir al-Sham has been following a similar model to that of ISIS in that they have been investing in formal industries while also setting up private companies to maintain the group’s economic independence. They have also been benefiting from their control of water and electricity in Idlib, collecting charges from residents. There has also been much trade activity between such rebel-held areas and regime areas, which has encouraged both sides to maintain the status quo, much like the situation in Libya.
Besieged areas have also witnessed trade activities, primarily through tunnels operated by middlemen. The government has been manipulating the formal exchange rate, making the rate inside besieged areas higher than elsewhere and consequently accumulating more revenue.
Regime-held areas have experienced much change. Since 2011, the state budget has decreased from $18 to $4 billion, with half now coming from external actors supporting the regime, and inflation has increased by 700%. To evade sanctions, the regime has set up front companies in loyalists’ names. For example, the Syrian Council for Metal and Steel set up in 2015 has contracts with its international partners Iran and Russia. Iran has militias and business-people working for it in the country. Khatib noted that the extent of outside interference has begun to worry the regime, and that true reconstruction, particularly including a return of refugees is not a goal of the state.
A key takeaway from the speakers’ overviews of the topic and the ensuing discussion is that economic alternatives to the present situation–which presents many economic incentives–must be found. The importance of political processes will not surpass the importance of economic security for citizens and state institutions alike. So long as the current situation is more profitable than any alternatives, it will persist.
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Private investment for public infrastructure
Deea Ariana, who graduated with a master’s from SAIS last spring, writes:
One of the inevitable costs of conflict is the damage to critical infrastructure that provides basic services to people and stimulates economic growth. Yet infrastructure procurement in post-conflict contexts is often slow and unable to cope with rising demand. Raffi Mardirosian argued that in the aftermath of conflict, an environment fraught with financial and political risks and weak legal structures hinders the construction and operation of infrastructure projects.
Conflict-affected states lack capital, technology, and skilled management that are essential to constructing new infrastructure. Consider Syria: The International Monetary Fund (IMF) states that rebuilding damaged physical infrastructure will be a “monumental task,”with cost estimates in the range of $100-$200 billion. That is nearly three times the country’s GDP back in 2010, before the conflict erupted.
The ongoing war continues to take a heavy toll on civilians and infrastructure. As Merriam Mashatt, Daniel Long, and James Crum note:
In conflict-sensitive environments, the condition of infrastructure is often a barometer of whether a society will slip further into violence or make a peaceful transition out of the conflict cycle. The rapid restoration of essential services, such as water, sanitation, and electricity, assists in the perception of a return to normalcy and contributes to the peace process.
Increasing access to infrastructure service delivery amid fiscal and capacity constraints calls for an alternative to the traditional public provision of infrastructure.
The idea of private investment in infrastructure has gained currency in recent years, leading to creation of public-private partnerships, or PPPs. These are a way for governments to implement infrastructure and services by utilizing the expertise of the private sector. Both parties share significant risks and management responsibilities.
Gonzalo Araya and Jordan Schwartz explain that private participation in infrastructure in countries emerging from conflict typically requires six to seven years to attract significant levels of investment from the day that the conflict is officially resolved. Usually the first infrastructure investments to arrive in conflict-affected countries are in sectors where financial risk is relatively low, which is mostly in telecommunications, as in Afghanistan and Iraq. Private investments in sectors where assets are harder to secure, such as water, power, or roads, are slower to appear or simply never occur.
There are several challenges to infrastructure reconstruction in conflict-sensitive environments that need to be addressed. P. B. Anand delves into these, explaining that weak governance entails corruption and flawed regulatory oversight, insecurity, and fragmented legal systems that discourage foreign investments. The government of a conflict-affected country must mitigate these challenges to nurture a favorable investment climate and encourage private investment in PPPs.
Donor support can also go a long way. As Andre Jones writes, PPP transactions are likely to rely on donor support in the form of capital subsidies, guarantees, or other mechanisms to facilitate private investment. An often-cited example is that of the restoration of Liberia’s power sector following the civil war in 2003. With support from the Norwegian government, the Liberia Electricity Cooperation (LEC) handed over its management to a Canadian power company, which boosted results. LEC began rebuilding electrical distribution in Monrovia, which led to more people having access to electricity and a significant increase in revenue. Losses were curtailed, peak load more than doubled, and fuel efficiency improved.
While public infrastructure projects accrue a net benefit to society as a whole, they nonetheless result in winners and losers. It is necessary to ensure that services also reach those people who are otherwise socially excluded. This guarantees that the society does not risk relapsing into another fresh bout of conflict by fighting over scarce resources.
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Peace picks June 13 – June 17
- Authoritarian Resilience and Revision after the Arab Uprisings. Monday, June 13. 3:30 PM – 5:00 PM. The Carnegie Endowment for International Peace. Register to attend. Five years after the 2011 uprisings, authoritarianism remains a deeply embedded feature of the Arab state system. Countries in the region are caught between the competing impulses of fragmentation and two equally unsustainable authoritarian visions—that of the self-proclaimed Islamic State, or classic autocratic regimes. Robert Worth and Joseph Sassoon will discuss these dynamics, sharing from their recent books. Carnegie’s Frederic Wehrey will moderate. Following the discussion, copies of the book will be available for sale with signing by the authors. Joseph Sassoon is an associate professor at Georgetown University’s School of Foreign Service and is the author of Anatomy of Authoritarianism in the Arab Republics. Robert Worth writes for the New York Times Magazine and is the author of A Rage for Order: The Middle East in Turmoil from Tahrir Square to ISIS. Frederic Wehrey is a senior associate in the Middle East Program at the Carnegie Endowment for International Peace.
- Cascading Conflicts: U.S. Policy on Turkey, Syria, and the Kurds. Tuesday, June 14. 10:00 AM – 11:30 AM. Bipartisan Policy Center. Register to attend. In the fight against ISIS, U.S. policymakers have been increasingly confounded by the fact that two crucial allies, Turkey and the Kurds, are locked in a violent conflict on both sides of the Turkish-Syrian border. While Washington’s plans for defeating ISIS rely on airbases in Turkey and Kurdish troops in Syria, the Turkish government continues to insist that Washington’s Syrian Kurdish partners are no different from the Kurdish terrorists against which it is fighting at home. In the absence of a more effective U.S. plan for addressing the situation, Turkey’s domestic conflict now threatens to not only undermine the war against ISIS but also destabilize Turkey, damage U.S.-Turkish relations, and prolong the Syrian conflict. Join the Bipartisan Policy Center for an expert panel discussion that will address the evolving relationship among Turkey, Syria and the Kurds, with a focus on the implications for U.S.-Turkish relations and U.S. policy in Syria. As an already complicated situation risks causing a major crisis between Washington and its allies, understanding the dynamics has become more important than ever. Panelists: Eric Edelman, Co-Chair, BPC’s Turkey Initiative, Former U.S. Ambassador to Turkey. Aliza Marcus, Author, Blood and Belief. Ceng Sagnic, Junior Researcher, Moshe Dayan Center for Middle Eastern and African Studies. Amberin Zaman, Public Policy Fellow, Wilson Institute. Moderated by:Ishaan Tharoor, Reporter, The Washington Post.
- Youth, Peace and Security: New Global Perspectives. Tuesday, June 14. 2:00 PM – 4:00 PM. U.S. Institute of Peace. Register to attend. Today’s generation of youth, at 1.8 billion, is the largest the world has ever known. Many of these youth are living in countries plagued by violent conflict and extremism, such as Syria, Iraq, Afghanistan, Pakistan, and Nigeria. The goal of SCR 2250 is to recognize youth as partners for peace rather than solely viewing young people as perpetrators of violence—a shift in mindset that responds to the call to action of 11,000 young peacebuilders in the Amman Youth Declaration. The resolution, sponsored by the Government of Jordan, is a direct follow-up to the Global Forum on Youth, Peace and Security held in August 2015, as well as the Security Council’s Open Debate on the Role of Youth in Countering Violent Extremism and Promoting Peace held in April 2015. Join USIP and the Interagency Working Group on Youth and Peacebuilding for a discussion on SCR 2250 with the U.N. Secretary-General’s Envoy for Youth H.E. Ahmad Alhendawi of Jordan, young leaders from countries affected by violent extremism and armed conflict, and other experts. Speakers Include: Manal Omar, Associate Vice President, Center for Middle East and Africa , U.S. Institute of Peace; H.E. Dina Kawar, Permanent Representative of Jordan to the United Nations; H.E. Ahmad Alhendawi, United Nations Secretary-General’s Envoy on Youth; Saji Prelis, Co-chair of the Inter-agency Working Group on Youth and Peacebuilding, Search for Common Ground; Soukaina Hamia, Youth Peacebuilder, Deputy Director of Sidi Moumen Cultural Center of Casablanca, Morocco; Saba Ismail, Youth Peacebuilder, Executive Director of Aware Girls, Representative of the United Network of Young Peacebuilders (UNOYP); Victoria Ibiwoye, Youth Peacebuilder, Founder of One African Child of Lagos, Nigeria; and Oscar Fernandez-Taranco, United Nations Assistant Secretary-General for Peacebuilding Support.
- The Economic Decline of Egypt after the 2011 Uprising. Wednesday, June 15. 1:00 PM. The Atlantic Council. Register to attend. Five years after the 2011 revolution, Egypt’s economy is floundering and remains far from recovery. Successive Egyptian governments since 2011 have struggled to develop a vision for a new economic model for Egypt, while simultaneously implementing populist policies to appease the immediate demand of the public. This lecture is also the launch of the Rafik Hariri Center’s Mohsin Khan and Elissa Miller’s new report, “The Economic Decline of Egypt after the 2011 Uprising,” and a discussion on the trajectory of Egypt’s economy since 2011 and what the current Egyptian government should do to arrest the economy’s downward slide. A discussion with: Prime Minister Hazem Beblawi, Former Prime Minister, Arab Republic of Egypt; Executive Director, International Monetary Fund; Caroline Freund, Senior Fellow, Peterson Institute for International Economics; Mohsin Khan, Nonresident Senior Fellow, Rafik Hariri Center for the Middle East, Atlantic Council; and Mirette F. Mabrouk, Deputy Director & Director of Research and Programs, Rafik Hariri Center for the Middle East, Atlantic Council. Introduction by: The Hon. Frederic C. Hof, Director, Rafik Hariri Center for the Middle East, Atlantic Council.
- Desert Storm after 25 years: Confronting the exposures of modern warfare. Wednesday, June 16. 3:00 PM – 5:00 PM. SEIU Building. Register to attend. By most metrics, the 1991 Gulf War, also known as Operation Desert Storm, was a huge and rapid success for the United States and its allies. The mission of defeating Iraq’s army, which invaded Kuwait the year prior, was done swiftly and decisively. However, the war’s impact on soldiers who fought in it was lasting. Over 650,000 American men and women served in the conflict, and many came home with symptoms including insomnia, respiratory disorders, memory issues and others attributed to a variety of exposures – “Gulf War Illness.” On June 16, the Center for 21st Century Security and Intelligence at Brookings and Georgetown University Medical Center will co-host a discussion on Desert Storm, its veterans, and how they are faring today. Representative Mike Coffman (R-Col.), the only member of Congress to serve in both Gulf wars, will deliver an opening address before joining Michael O’Hanlon, senior fellow at Brookings, for a moderated discussion. Joel Kupersmith, former head of the Office of Research and Development of the Department of Veterans Affairs, will convene a follow-on panel with Carolyn Clancy, deputy under secretary for health for organizational excellence at the Department of Veterans Affairs; Adrian Atizado, deputy national legislative director at Disabled American Veterans; and James Baraniuk, professor of medicine at Georgetown University Medical Center. Following discussion, the panelists will take audience questions.
- Can the US Work with Iran: Challenges and Opportunities. Thursday, June 16. 9:00 AM. The Atlantic Council. Register to attend. Nearly a year after the five permanent members of the UN Security Council plus Germany signed a landmark nuclear deal with Iran and nearly six months after the agreement was implemented, the nuclear aspects of the Joint Comprehensive Plan of Action (JCPOA) appear to working smoothly. But other challenges potentially imperil the agreement. There are questions about whether the JCPOA can serve as a template for additional regional and international cooperation or whether domestic politics in the US and Iran and Iran’s continuing difficulties re-entering the global financial system will put those opportunities out of reach for the foreseeable future. To discuss these vital issues, the Atlantic Council’s Future of Iran Initiative and the Iran Project invite you to a half-day symposium.
9:00 a.m. – The progress and problems of sanctions relief
Featuring: Christopher Backemeyer, principal deputy coordinator for sanctions policy at the Department of State, Teresa Archer Pratas, deputy head of the sanctions divisions at the European External Action Service, andGeorge Kleinfeld, a sanctions expert at the law firm Clifford Chance, and moderated by Elizabeth Rosenberg, director of the Energy, Economics, and Security Program at the Center for a New American Security.
10:15 a.m. – The JCPOA’s effects on US-Iran relations
Featuring: Suzanne DiMaggio, director of the US-Iran Initiative at New America, Suzanne Maloney, deputy director of the Foreign Policy program at the Brookings Institution and a senior fellow in the Brookings Center for Middle East Policy and Energy Security and Climate Initiative, and Negar Mortazavi, an Iranian-American journalist and analyst, and moderated by William Luers, director of the Iran Project.
11:30 a.m. – The impact of the JCPOA on Iran’s role in regional conflicts
Featuring: Ellen Laipson, a senior fellow and president emeritus of the Stimson Center and former deputy chair of the National Intelligence Council, J. Matthew McInnis, a resident fellow at the American Enterprise Institute and a former senior analyst in the US Department of Defense and Intelligence Community, and Bruce Riedel, director of the Intelligence Project at the Brookings Institution and a former senior director for the Near East and South Asia on the National Security Council. Barbara Slavin, acting director of the Future of Iran Initiative, will moderate.
12:30 p.m.– Keynote by Ben Rhodes, deputy national security advisor for strategic communications, on the legacy of the JCPOA. Stephen Heintz , president of the Rockefeller Brothers Fund, will introduce and moderate.
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Egyptian entrepreneurs
Last Wednesday, the Middle East Institute held its 3rd annual Egypt conference, entitled “Reducing Risks, Unlocking Potential,” with three expert panels. Here I focus on the final panel, ‘Economic Development and Entrepreneurial Innovation’, which explored the promise of the Egyptian economy and its human resources, as well as the significant challenges facing it before it can achieve real, wide-reaching development. Moderator Mona Mowafi (co-founder and president of RISE Egypt) anchored the discussion with an introductory question: ‘What kind of society does Egypt want to become?’ Starting from the understanding that Egypt has an underdeveloped economy, with low job creation and miles of bureaucratic red tape, the panelists described a dynamic country with great economic potential, and emphasized that social and political advances are necessarily tied to a more developed, innovative, and democratized economy.
Egypt does not lack either natural or human resources. It has a dynamic ecosystem for economic innovation, a view that perhaps reflects the panelists’ backgrounds. Seif Abou Zaid, CEO of Tahrir Academy, is an entrepreneur focused on education and governance, as well as how to connect the two. Mohamed Zaazoue, a neurosurgeon, founded Healthy Egyptians, with which he hopes to raise basic health education levels for all Egyptians. Their co-panelists are economists: Amr Adly is a consultant at the Carnegie Middle East Center, and Heba Elgazzar is a senior economist in Social Protection and Labor Global Practice at the World Bank. They used their practical experiences of navigating Egypt’s entrepreneurial environment to analyze the country’s potential.
Both Adly and Elgazzar highlighted the informal or personalized nature of several industries in Egypt, where jobs and professional relationships are based on personal ties and social networks. This can be both an asset and a drawback. It encourages practices such as ‘wasta’ – or cronyism (though this has political causes as well). Many people are left doing part-time or casual jobs, rather than full-time employment. But there are many locally-based small industries that thrive in their communities and are ‘entrepreneurial’ in their own sense – low-tech, but creative, as Adly pointed out.
Zaazoue insisted that Egypt’s youthful population and its human resources generally are the country’s biggest resource, which needs to be cultivated and invested in for the future. Elgazzar agreed that the resources are there, and that Egypt’s particularly urban character provides a clustering of skills, knowledge, and information, creating an excellent environment for economic innovation.
Abou Zaid why there hasn’t there been a transformative moment yet. Why aren’t these skills and knowledge being exploited? There are governmental and non-governmental barriers. One of the latter is access to finance. Adly also highlighted that though Egypt’s private sector is quite large, it does not operate within a framework that can transform annual growth into structural development of the economy as a whole.
Both Abou Zaid and Zaazoue are interested in policy-making and want to have an effect on Egyptian society at large, rather than just running successful businesses. But there is a bureaucratic ‘bottleneck’ which makes it difficult to get projects implemented through government ministries. There is also heightened hostility to non-profit organizations under Sisi’s government. So starting new businesses and trying to tie change to the market has been a way for both to pursue their goals.
Zaazoue first tried to speak with ministers about adding health education to school curricula, but when he got nowhere, decided to create games and cartoons about health which could be marketed for kids. Abou Zaid’s school was originally non-profit, but it was shut down under new laws governing funding for such organizations. He has had to explore setting up fee-paying accommodation in order to become a profit-making institution.
Elgazzar thought the government needs to pick one or two priorities and focus on them for the next several years. In her view, these should be education and job creation. Zaazoue would like to see foreign capital directed into education and health systems, instead of military and security budgets. High-quality education, better schools, and more democratized education, will have an effect on growth potential, bring more women into the work force, and serve to change people’s attitudes about seeking out new work.
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