CAMBRIDGE – Five years after the Arab Spring uprisings began, Egypt, Jordan, Morocco, and Tunisia have achieved reasonable levels of political stability. Yet economic growth remains tepid, and the International Monetary Fund does not expect the pace of expansion to exceed 1.5% per capita this year. Given the region’s large catch-up potential and young workforces, one must ask why this is so.
One obvious explanation is that, despite significant progress in building stable governments, these countries remain subject to political risks that scare private investors. But private investment was modest before the uprisings of 2011, when such risks were already high. There must be more to the story.
A look at these countries’ recent economic history offers insight into the problem. Market economies are relatively new to the Middle East and North Africa, having arisen only after the 1980s, when the model of state-directed economic growth collapsed under the weight of its inefficiencies (and resulting debt). Unlike Latin America or Eastern Europe, however, Arab countries liberalized their economies without liberalizing their politics. Autocrats, supported by Western powers, remained firmly in place.
As a result, even as the reforms of the 1990s rolled back the state’s economic role – in Egypt, state spending fell from 60% of GDP in 1980 to 30% of GDP in the 1990s – politics continued to shape markets. With economic privileges doled out in a way that blocked the emergence of independent entrepreneurs that might eventually challenge the autocrats’ control, favored firms were able to acquire virtual monopolies over entire liberalized economic sectors.