Major economic reforms in the Middle East have failed to adequately address existing problems due to lack of genuine commitment especially from the political arena. During the 1980’s and 1990’s economic crisis, majority of the MENA countries responded to the crisis by the implementation of economic reforms that were very selective. Policies that were market oriented were enacted but some areas such as reforms in the labor market were neglected since they were considered as politically risky.
Some of the reforms that were market oriented included the agitation of fixed income markets, equity financing for enterprise creation and modernization and the integration of capital markets. These reforms were directed towards the liberalization of markets in MENA region. Some of the labor oriented reforms included payroll taxes reduction on unskilled labor, cut in public sector wages and employment of secondary and post secondary graduates in the public sector in Egypt which was put in place till the 1990’s.
Despite these reforms bringing some positive changes they have not adequately increased employment and improved economic performance. To make these policies successful, MENA governments should be zealous and show a renewed commitment towards their implementation. Most of the reforms are really good and only need to be upgraded and updated to have full effect in achieving the goals of reducing poverty, inequality in income and improved income among citizens (Sufyan, 2007). Reforms are externally driven and designed
In 1996 during a MENA conference held in Cairo, Egypt, the IMF stressed to assist MENA governments to design structural economic reforms through organizing of consultation discussions with other countries, offering of financial assistance as well as technical assistance especially in areas such as tax reforms and monetary policy to the MENA countries. Although this assistance is beneficial to some extent the issue of the design of economic reform should not be left to external factors as there are always some vested interests and this could have led to failure of policies in the MENA region.
External conditions that are favorable to economic growth are known to drive the implementation of economic reforms. Presence of social regimes and the Elites In MENA countries, there are the super rich families and the poor who live below $2 a day. The rich and the ruling groups are the ones favored over the poor majority. The elite who are the minority control a big part of the available economic resources. The MENA countries are also characterized by the infiltration of informal patronage into government structures.
Governments in the MENA region may sometime no be able to implement some policies that are viewed to rub the elites the wrong way because of not wanting to upset their allies. Most often these elites get involved in great deal of corruption and corporate misconduct. The influential social and cultural based tribes of the Arab societies are organized in such a way that this trend carries on (Yousef, 2004). Clash between economic reform and political reform The clash between economic and political reform is one of the major impediments to the progress of MENA countries.
For there to be a successful economic reform there must be a reform in the political arena to create an enabling environment for the economic reform to take place. In the Arab world there are two schools of thought on the issue of political reform and economic reform. One school of thought argues that a political reform must take place first before an economic reform as changes in the logical and structural organization of governments is fundamental to create an enabling atmosphere for economic reform to take place.
The other school of thought is of the opinion that authoritarian governments are better placed to implement effective economic reform than democracies. With this kind of clash it will take some time before both economic reforms and political reforms takes effect. Excuse of conflict and occupation in Iraq Many policy makers in MENA countries take the ongoing conflict between Israel and Palestine and the occupation of Iraq as reasons to postpone essential economic reform.
They argue that the main reason they can’t facilitate an economic reform under such a situation is that it has the risk of giving rise to extreme political instability. While such a claim might hold some water, it cannot be taken as a blanket excuse of carrying forward economic reform. On the other hand, although the conflict may be important for Iraq, Palestine and Lebanon, what excuse do the regional politically stable countries like Egypt and Jordan have? Lack of sufficient privatization of firms
The inability of MENA governments to embrace and make privatization of state owned firms easier especially the under performing ones has resulted in lack of sufficiency to privatize the firms. Privatization of firms in these countries is very difficult due to the long and tiresome processes involved some of which are out dated. Privatization of firms is one way of the government to ensure that underperforming firms become productive with the government also earning money from the sale of these companies.
For instance, in a study of newly privatized firms in the MENA countries it found that there were subsequent increases in profits and operating efficiency following their privatization (Wilson, 1998). Sufficient oil reserves to cushion the impact of economic stagnation. One of the factors that are preventing most MENA countries from carrying out major economic reforms is their self sufficiency in oil reserves coupled by high fuel prices. The MENA countries therefore don’t feel the necessity to come up with economic reforms as there is ready money from the sale of oil. However, much deep rooted problems are currently afflicting the region.
The rise in the population of the youth has surpassed MENA’s capacity to create employment for them leading to rising unemployment levels and widespread informality. This problem is also coexisting with the current slump in crude oil prices fetching below the expected amount of revenue for these countries.
Sufyan, A. (2007). Challenges of Economic Reform in the Arab World. Carnegie: Carnegie Endowment. Yousef, T. (2004). Development, Growth, and Policy Reform in the MENA since 1950. Wilson, R. (1998). Middle Eastern Studies. British Journal of Middle Eastern Studies. Vol, 25, issue 2,