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Arab economies will live or die by governance reforms

New interntional reports show what Arab countries must do to jump-start economic growth.

'How am I supposed to make a living?"

Those were the last public words attributed to Mohammad Bouazizi, the Tunisian vegetable seller who doused himself in petrol and set himself on fire - angered by a police officer who took away his vending permit, and a municipality that dismissed his complaints.

The rest, of course, is history. Bouazizi's act sparked the Tunisian uprising that led to the overthrow of dictator Zine El Abedine Ben Ali. The Tunisian flame lit the Egyptian embers - simmering with hundreds of thousands of Bouazizis - and it spread across several of the populous Arab states of North Africa and the Levant.

While the protests should not be viewed as solely economic, Arab economic underachievement has been a key driver in the uprisings. Young men like Bouazizi, unemployed or underemployed, face a world of disappointment. As they struggle to eke out a living, they often encounter predatory local officials who shake them down for bribes or engage in petty harassment. Even worse, national regulatory environments often establish uneven playing fields compared to the rest of the world.

Two recent reports give a sense of where the Arab world stands in key economic spheres: trade and business. The World Economic Forum recently published its biennial Global Enabling Trade Report, a comprehensive compendium of the trade environments of 132 countries. Also, the World Bank and its private sector arm, the International Finance Corporation, recently published a special edition of its highly anticipated annual Doing Business series that focuses on the business and regulatory environments in the Arab world.

Both reports highlight strengths and weaknesses of each country, but just as importantly they produce rankings that allow for comparative analysis. These rankings are closely monitored by officials in ministries of commerce, finance and trade worldwide, and often spur new regulations and innovation in an effort to move up the charts.

The 2012 Enabling Trade Index ranks the UAE number one in the Arab world, and number 19 globally in terms of its trade-enabling environment. This puts the UAE in good company, ahead of France (number 20), Belgium (21), the United States (23) and South Korea (34).

Second in line in the Arab world after the UAE is Oman (25), followed by Saudi Arabia (27), Bahrain (30), Qatar (32), Jordan (42) and Tunisia (44). Kuwait ranks lowest among GCC states at number 66. Other Arab world laggards are Egypt (90), Lebanon (93), Syria (108) and Yemen (119).

It is revealing that the Arab world's top five trade-enabling states are all in the GCC region. While each country is different, this GCC domination reflects poorly on some of the more populous, oil-importing Arab states that need the vital catalyst of trade and business-boosting regulatory environments to meet the needs of their populations.

While trade is not a panacea, a look at the top 10 trade enablers on the index - Singapore, Hong Kong (which is considered separately from China), Denmark, Sweden, New Zealand, Finland, the Netherlands, Switzerland, Canada and Luxembourg - reveals a group of small countries punching far above their expected economic weight.

Small countries need trade more than larger countries, some might say, but Germany, with a population roughly the size of Egypt's and an export-driven economy, comes in at number 13; Japan, with a population 50 per cent larger than Egypt's, comes in at number 18. It's also worth noting that Japan's GDP is more than 20 times larger than Egypt's; Germany has a GDP more than 12 times larger than Egypt's.

What about business and regulatory environments across the Arab world? Which country is most friendly to the growth-inducing private sector? In this respect, the GCC again dominates Arab world rankings. In the World Bank/IFC Doing Business Index 2012, the GCC owns six of the top seven Arab world slots. Saudi Arabia ranks number one in the Arab world (and number 10 globally), followed distantly by the UAE (33), Qatar (36) and Bahrain (38).

What's going on here? Why are the oil and gas-rich countries that can most afford to make mistakes and produce poor regulatory environments doing the opposite, while those that can least afford to build a shaky architecture of trade and business environments are doing just that? In a word: governance.

Over the past two decades, most GCC states - with Kuwait as an exception - have engaged in a more sophisticated manner with the key economic trends shaping our world: globalisation, private sector development and regulatory reform. GCC states have also produced a cadre of senior-level technocrats - such as Sheikha Lubna Al Qasimi, the UAE Minister of Foreign Trade, and Ali Al Naimi, the Saudi Minister of Petroleum - who rank among the best in the world.

Of course, it must be said that comparisons between, say, Egypt and many GCC states are unfair given the differences in size and resources, but Egypt can certainly be compared with Turkey, Malaysia or Indonesia. In all respects, it falters.

These indexes are useful barometers of where a nation stands. Taken individually, however, they only paint one piece of an economic picture, and while GCC states have better trade and regulatory environments, most still have a long road ahead to diversify their economies and build more sustainable knowledge and private sector-driven economies. Three key weaknesses across GCC states are public education, poor work-culture practices among nationals and underdeveloped entrepreneurial support networks.

The good news for countries such as Egypt is this: effective regulatory reforms could dramatically unleash the potential of tomorrow's generation, and empower "Arab tigers" that could really transform the Middle East - and the world.

 

Afshin Molavi is a senior adviser at Oxford Analytica and a senior research fellow at the New America Foundation

On Twitter: @afshinmolavi

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