Arab states in crisis In search of a miracle cure
The COVID pandemic and the war in Ukraine have had very different impacts on the Arab world. While oil-importing states are facing unprecedented food and energy price hikes, unemployment, debt and inflation, Gulf states have amassed huge profits from the sudden rise in oil prices.
In the crisis-ridden Middle East, it is becoming abundantly clear that the existing political and economic systems have reached their limits. There needs to be a fundamental revision of the authoritarian and rentier capitalist systems currently in place if social order is to be maintained and stability and prosperity preserved.
This succession of crises and challenges has engendered a variety of reactions from Arab states. The latter fall into three categories, determined less by their geographical proximity than by the political strategy pursued: flourishing states, states in crisis, and failed states. The question is not whether these countries are capable of maintaining the old Arab order – they can't. It is more a question of what new Arab order they aspire to.
Witnessing a progressive collapse in the price of oil from 2014 onwards, several Gulf states have realised that the rentier economy is no longer capable of reducing unemployment and creating real jobs. Moreover, oil revenues have proved unable to keep pace with public sector inflation.
Several Gulf states, led by Saudi Arabia, the United Arab Emirates (UAE) and Qatar, have therefore begun diversifying their economies in earnest, with the aim of freeing themselves from a one-sided dependence on oil. Far-reaching economic and fiscal reforms have been implemented, numerous subsidies reduced and investment laws updated.
Pioneering reforms
Saudi Arabia has seen major social reforms recently. Women are now allowed to drive, for example, while many social restrictions on citizens have also been lifted. The UAE took this path decades ago. These states are now also adopting a new approach to financial support for other countries.
Rather than supporting the state budgets of oil-importing countries as before, aid is now conditional either upon economic reforms or the acquisition of shares in state-owned enterprises. Some states are no longer receiving support at all, owing to political differences.
Even though the oil price has risen in recent months, the Gulf states have not returned to their previous policy of financial support. Much of the additional oil revenue is instead being invested in domestic projects. This change has been very positively received, especially by the younger generation.
As a result, the ruling regimes have succeeded in maintaining their grip on power without having to implement political reforms that would have given their citizens a greater role in the decision-making process and brought the issue of human rights more to the fore.
It is doubtful, however, whether this strategy can remain successful long-term if political decision-making power remains concentrated in the hands of one person or a small group and nothing is done to combat clientelism and corruption.
Reforms blocked in Jordan, Egypt and Tunisia
The second group, the states in crisis, consists mainly of countries with little oil and many workers. These include Jordan, Egypt and Tunisia, for example. Traditionally, these countries have been heavily dependent on the support of the oil states and the remittances of their citizens who work there. Known as semi-rentier states, these countries have also experienced high public sector inflation and an entrenched culture of cronyism at the expense of efficiency and productivity.
At the beginning of the last decade, massive protests erupted in these countries when international financial assistance and migrant workers' remittances became insufficient to cover the costs of the expanding public sector and create real jobs.
With much of the revenue used to cover current expenditure, education, health and transport were neglected, even though these are the very sectors that form the basis for high growth rates.
Not least because of the changes in aid payments by the oil states, these countries are now in severe economic straits, since they can no longer rely on foreign funds to maintain sustainable economic and political systems. These countries are currently experiencing dangerous increases in unemployment, debt, and food and energy prices.
These countries are aware they are at an impasse in the way they do business and possibly also with their political systems.
Nevertheless, there are strong forces of inertia opposed to transitioning to an order based on efficiency, participation, the rule of law and equality. They reject even the notion of a gradual transition, convinced that this would change the social contract on which their power is based.
The political and security elites in these countries fear for their privileges and influence. They oppose the proposals of reformers who are pushing for a transformation towards an efficiency-based economic model, for higher productivity and thus for more economic growth and real employment opportunities. Yet, at the same time, such reforms would significantly strengthen the social base of those loyal to the regime.
This theoretical discussion looks set to continue, while the economic situation in these countries continues to deteriorate. Change will only come when the political and security elites realise that the old mechanisms, which relied on the violence of the security forces and external financial resources to maintain social peace, have had their day once and for all.
