Saturday, March 19, 2011

Middle East: 'Get Ready for Development Cooperation in the Middle East'

The author | Credit: OECD

By J. Brian Atwood*

IDN-InDepth NewsViewpoint

PARIS (IDN) - Spreading demand for change in the Middle East and North Africa has Western governments scrambling to calculate appropriate diplomatic responses. As happened when Central and Eastern Europe and the Soviet Union yielded to democratic forces, there will soon be demand from new and/or reforming governments for cooperation in political and economic institution building. Donor nations must be ready to respond.

Video of street demonstrations from Morocco to Yemen accurately emphasize the desire for freedom from authoritarian rule. It is also the failure of Middle Eastern economies to produce professional livelihoods that propels the youth of these nations to revolution. Paradoxically, the tool they are using to organize dissent is also their window to the future, the new technology of the information age.

When the commotion of the immediate struggle for regime change subsides, demand for jobs will not recede. Nor will it recede with the casting of ballots. Indeed, expectations that governments will create private sectors capable of producing meaningful employment will rise exponentially as new governments take office. Democratic elections will create a cacophony of promises, many revolving around reform of the economic systems.

Egypt's economy mirrored that of other parts of the region some ten years ago. It evolved as external investors and friendly governments prodded the Mubarak government to create a better investment climate, a private sector and the micro-economic systems that facilitate trade and investment.

Enlightened government leaders like Yousef Boutros Ghali moved as far as they could in this direction and reform paid off in dramatic GDP growth of some 7% in 2006 to 2008. That halved during the global financial crisis. New wealth has since been created, but it was not not equitably shared.

As opportunity expanded, the military wanted a piece of the pie. This tightly knit network invested in all manner of enterprises. Ironically, the military competed with civilian oligarchs who continued to manage the parastatals that were tied closely to Mubarak's government. As reform is undertaken elsewhere, planners would be wise to carefully examine the pitfalls of the Egyptian model and instead seek more inclusive growth.

Donors in Western nations will wisely wait for requests for assistance to emerge from the region, but that could come soon. Reform will take time. Democratic elections and newly reform-minded governments will produce plans that can be best implemented with some initial external help. Social services, disrupted by the street revolts, will need to be resumed. Short-term support for education, health care and food security will be required. Technical assistance and budget support will help governments begin the longer process of creating commercial codes, dependable tax systems, customs facilities and banks to finance new businesses.

Countries in this region, as Hernando DeSoto has observed, have hidden wealth -- dead capital, as he calls it -- that can be brought to life if the obstacles to private entrepreneurship are removed. Informal economies in these nations are large because the path to formality is strewn with bureaucratic processes designed to feather nests rather than create wealth.

The political life of the Middle East has been largely about various kinds of patronage, but it would appear that we have entered a new era. Demand rising from the streets is more complex than the call to remove the ancien regime. It is also a plea for the opportunity that a thriving private sector can provide.

Central and Eastern Europe and the former Soviet Union transformed centrally-planned economies over the past decade. It will not happen in exactly the same way in the Middle East, but. That would make the courage and sacrifice of this new generation worthwhile.

Economic development can flourish when civil society is allowed a voice. Entrepreneurs who are given the freedom and the space to take risks are an important product of more open societies. This is the message that everybody can hear loud and clear in the Middle East. Where there is a real commitment in these countries to take this message to heart, the donor nations will be eager to become development partners.

*The author is the Chair of the Development Assistance Committee of the Organization for Economic Cooperation and Development and is a former Administrator of the U.S. Agency for International Development. (IDN-InDepthNews/18.03.2011)