After the Arab Spring, economic challenges remain

Thomas Lagoarde ar-Segot economist (Euromed Management & GREQAM, Aix-Marseille University)

The Arab Spring has undermined the social contract that bound the peoples of the southern Mediterranean to their leaders during the past three decades. This social contract has been modified in some countries (Algeria, Morocco, Jordan, Lebanon) and collapsed in other countries (Tunisia, Egypt, Libya, Syria). But the structural cause of the economic malaise of the South remains: the economic growth rates are too low to allow the employment of young people who, for demographic reasons, come into mass on the labor market. However, economic studies identify the elements of a comprehensive strategy that would close the gap.

First observation: the ability of the economies of the South to create well-being has long been diminished by the presence of relational rents. Indeed, despite displaying programs “liberalization”, resource allocation based more on political connections on the market, which requires informational transparency, equality of opportunity and meritocracy. The surveys of entrepreneurs in South and refer corruption, favoritism, and the instability of the regulatory framework as major obstacles to the development of economic activity. In this context, many companies rely more on the search for public contracts on competition and innovation to ensure their development. In comparison with observed in emerging medium, Mediterranean companies are fewer, older, less productive, and invest less. Improve market transparency, develop information for economic agents and facilitate access to credit so would alter the path of long-term growth of these economies.

An identity crisis

Second observation: the southern economies are characterized by a dual operation. In recent decades, economic growth has indeed mainly concentrated in the cities and coastal regions, so that in each country, the richest 10% of the population hold more than a quarter of national wealth. This dynamic linking to institutional problems described above, was one of the causes of the uprising. As throughout the previous decades, the response of governments during the Arab Spring was then increased transfer income. While this strategy has helped cushion the shocks it faces budgetary constraints (at least in countries with few natural resources) and, above all, do not reveal prospects for long-term development.

An alternative would be to foster intensive economic activities in unskilled labor and located in rural areas. This would directly increase the incomes of the poor and create a “regime propauvre growth” (in which the income of the poor is growing at a higher rate than the average rate of growth of national income). The European Union has as such a key role to play in lifting restrictions on imports of fruit and vegetables from the Maghreb countries.

Third observation: the Mediterranean economies are highly vulnerable to the impacts of global warming (fire, water scarcity, rising sea levels, destruction of arable land …) The income of millions of people depend on the unique ecosystem region, not only through fishing and agriculture, but also by the tourism revenue. Environmental degradation threatens so many key sectors of these economies. According to calculations FEMISE, an increase of 1 ° C average temperatures in the Mediterranean lead to a significant decrease in rainfall, crop yields and tourism receipts. This could result in a decline in GDP per capita up to 14%. Mediterranean countries have now accumulated a considerable delay in the field of environmental policy. Far from being a hindrance to development, they nevertheless would limit the social cost of pollution while creating jobs and wealth. This is true all over the world, but especially in the Mediterranean, where natural assets such as water and coastal areas play a central role and have been under pressure for decades.

Identity crisis in Arab countries seems to paralyze the Euro-Mediterranean Partnership. Yet despite the political uncertainties, the wait is prohibited. The Mediterranean Sea is the most unequal in the world frontier: the combined GDP of Algeria, Tunisia, Egypt, Morocco, Lebanon, Jordan and Syria is close to that of Belgium. Stakeholders can not risk seeing the development gap mutate into geopolitical divide.

By Thomas Lagoarde-Segot economist