Through the Fog of War*

By Norman A. Bailey**
Saturday, August 30th, 2014 @ 7:14PM

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Through the fog of war, civil war, terrorism, separatist movements, sectarian and ethnic violence and millions of displaced persons, it is easy to overlook aspects of the situation in the Middle East and North Africa (MENA) which in the medium- to long-term will be equally or even more dangerous.

Perhaps first on the list of overlooked topics is the economy.  All of the factors mentioned above are negative for the economy of the MENA region, and in some cases catastrophic.  In some countries, such as Libya and Syria, there is no national economy left.  Most of whatever productive assets have not been destroyed or damaged, are in the hands of one or another of the contending sub-national groups.

In other cases, such as Iraq, Yemen and Lebanon, although there is still a much reduced national economy, large segments are in the hands of the same kinds of political, religious, terrorist or ethnic groups as in the case of Libya and Syria.  It is simply a matter of degree.

So far, Morocco, Algeria, Saudi Arabia Iran and the Gulf States have not been seriously affected economically by the chaos of the post-“Arab Spring” chaos and destruction.  But those that are heavily to almost completely dependent of oil and/or gas revenues will indeed be affected, and negatively, by the technological and policy changes affecting the energy markets, especially fracking and alternative energy developments.  It can confidently be predicted that the market for oil and gas, and consequently their price, will continue to decline.

Tourism has also been negatively affected, which is serious for countries such as Tunisia and Egypt, otherwise more stable, after overthrowing Islamist governments.  In the case of Egypt any reduction in revenues is especially serious, since the country has been in a chronic state of economic crisis for years.  Indeed, if fundamental economic reforms are not undertaken, including reduction or elimination of subsidies, restructuring of the agricultural sector, and investment in low-tech industry, in which Egypt should have a significant comparative advantage, the economic and eventually political and social outlook for the country is bleak indeed, especially since it can count on declining assistance from oil-rich Arab countries, as their revenues decline.

Finally, there are the countries that have successfully transited the “Great Recession” of 2008-10 and the “Arab Spring” chaos since 2011 because of diversified economies, despite limited natural resources–Turkey and Israel.  A very short list.

All these political and military blows are affecting a region that, in any case, with the two exceptions mentioned, has been stagnating for decades.  The entire MENA region represents about the same percentage of global imports as Germany alone. In 1965 Egypt’s per capita income was more than twice that of China.  It is now less than half.  In the same year, Iran and South Korea had about the same per capita GDP.  South Korea’s figure is now eight times that of Iran, despite a lack of natural resources.

What can be done?  In some cases, such as Syria, Libya, Lebanon and Iraq, nothing until the political/military situation is resolved, not a short-term prospect.  The oil and gas producers must use much more of their wealth in productive investment instead of supporting political movements and corruption.  There is no reason but the nature of the governing regime why Iran should not have as diversified an economy as Turkey. Egypt was once the breadbasket of Europe and the Levant. It can again feed itself and produce surpluses for export, but only the proper restructuring of the rural economy can make that happen.

In all of this Israel can be very helpful, if only invited to be so.  There are faint indications that that may happen, to follow on to the political rapprochement with Egypt, Saudi Arabia and some of the Gulf States brought about by common threats.

* A version of this column will be published in Globes Israel.

** Norman A. Bailey, Ph.D., is Adjunct Professor of Economic Statecraft at The Institute of World Politics, Washington, DC, and teaches at the Center for National Security Studies and Geostrategy, University of Haifa.   

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