Posted on March 8, 2020, in The Arab Weekly, Six decades after independence, Middle East still looking for growth model by Rashmee Roshan Lall is an accurate survey of the region that faces, as we speak, prospects of harshest times. How is the Middle East still looking for a growth model? Investing in the human capital of children and young people as well as enhancing their prospects for productive employment and economic growth is little more complicated than relying on Crude Oil exports related revenues. These are the main if not the only source of earnings of the region now plummeting perhaps for good before even peaking. In effect, all petrodollar inspired and financed development that, put simply, was transposed from certain parts of the world, using not only imported materials but also management and all human resources can not result in anything different from that described in this article.
Though a large youthful population would normally be regarded an economic blessing, it’s become the bane of the MENA region.
It’s been 75 years since World War II ended and the idea of decolonising the Middle East and North Africa began to gain ground but, while formal colonisation ended about six decades ago, the region seems unable to find a clear path to growth.
Rather than an “Arab spring,” what may be needed is a temperate autumn, a season of mellow fruitfulness to tackle the region’s biggest problems. These include finding a way to use the demographic bulge to advantage, reducing inequality of opportunity and outcome and boosting local opportunity.
Here are some of the region’s key issues:
The MENA region’s population grew from around 100 million in 1950 to approximately 380 million in 2000, the Population Reference Bureau said. It is now about 420 million and half that population lives in four countries — Egypt, Sudan, Iraq and Yemen.
The 2016 Arab Human Development Report, which focused on youth, said most of the region’s population is under the age of 25.
The youth bulge is the result of declining mortality rates in the past 40 years as well as an average annual population growth rate of 1.8%, compared with 1% globally. The absolute number of young people is predicted to increase from 46 million in 2010 to 58 million in 2025.
Though a large youthful population would normally be regarded an economic blessing, it’s become the bane of the MENA region. The demographic trend suggests the region needs to create more than 300 million jobs by 2050, the World Bank said.
Jihad Azour, International Monetary Fund (IMF) director for the Middle East and Central Asia, said MENA countries’ growth rate “is lower that what is required to tackle unemployment. Youth unemployment in the region exceeds 25%-30%.” The average unemployment rate across the region is 11%, compared to 7% in other emerging and developing economies.
Unsurprisingly, said Harvard economist Ishac Diwan, a senior fellow at the Middle East Initiative, young Arabs are unhappier than their elders as well as their peers in countries at similar stages of development.
Last year’s Arab Youth Survey stated that 45% of young Arab respondents said they regard joblessness as one of the region’s main challenges, well ahead of the Syrian war (28%) and the threat of terrorism (26%).
The region’s population is expected to nearly double by 2030 and the IMF estimated that 27 million young Arabs will enter the labour market the next five years.
Poverty and inequality
Most Arab people do not live in oil-rich countries. Data from the UN Economic and Social Commission for Western Asia (ESCWA) stated that 116 million people across ten Arab countries (41% of the total population), are poor and another 25% were vulnerable to poverty. This translates to an estimated 250 million people who may be poor or vulnerable out of a population of 400 million.
The MENA region is also regarded as the most unequal in the world, with the top 10% of its people accounting for 64% of wealth, although the average masks enormous differences from one country to another.
The middle class in non-oil producing Arab countries has shrunk from 45% to 33% of the population, ESCWA economists said. In a report for the Carnegie Corporation last year, Palestinian-American author Rami G. Khouri described what he called “poverty’s new agony,” the fact that a poor family in the Middle East will remain poor for several generations.
Egypt is a case in point. In 2018, Cairo vowed to halve poverty by 2020 and eliminate it by 2030. However, Egypt’s national statistics agency released a report on household finances last year that said that 33% of Egypt’s 99 million people were classified as poor, up from 28% in 2015. The World Bank subsequently nearly doubled that figure, saying 60% of Egyptians were “either poor or vulnerable.”
Wealth gaps between countries are greater in the region than in others because it has some of the world’s richest economies as well as some of the poorest, such as Yemen.
Inequality is not the only problem in the region. Former World Bank economist Branko Milanovic said the uneven picture means that last year’s protests in Lebanon, Algeria, Sudan and Iraq cannot be explained by “a blanket story of inequality.”
Indeed, Algeria, a relatively egalitarian country, was roiled by protests, first against a long-serving president and then against the wider political system.
French economist Thomas Piketty, who wrote the bestselling book on income inequality, “Capital in the Twenty-First Century,” said Arab countries must come up with a way to share the region’s vast and unequally distributed wealth.
Lost decades of growth
In the decade from 2009, the region’s average economic growth was one-third slower than in the previous decade. The IMF said per capita incomes have been “near stagnant” and youth unemployment has “worsened significantly.”
The state is the largest employer in many Arab countries and over-regulation of the private sector left it underdeveloped and unable to overcome the significant barriers to trade and economic cooperation across regional borders. Meanwhile, inflexible labour laws stifled job creation and cronyism allowed inefficiency to stay unchallenged. In 2018, the average rank of Arab countries on the World Bank’s Doing Business survey was 115th out of 190 countries.
Along with structural factors, conflict has had a debilitating effect on economic growth. Three years ago, the World Bank noted that the Syrian war had killed approximately 500,000 people, displaced half the population — more than 10 million people — and reduced more than two-thirds of Syrians to poverty.
By 2017, conflict in Yemen and Libya had displaced more than 15% and 10% of their respective populations of 4 million and 6 million. Taken together, the Syrian, Yemen and Libyan civil wars have affected more than 60 million people, about one-fifth of the MENA population.
Infrastructural damage runs into the billions of dollars but it is the loss — or outright collapse, as in Yemen — of economic activity that has affected real GDP growth.
Countries in the region affected by conflict lost $614 billion cumulatively in GDP from 2010-15 — 6% of the regional GDP, ESCWA’s 2018 report on institutional development in post-conflict settings stated.
New thinking needed
This is the year when, for the first time, an Arab country holds the chairmanship of the Group of 20 of the world’s largest economies. It could be an opportunity to consider existing trends within the region, what needs to be changed and how.
In the words of Oxford development macroeconomist Adeel Malik, “the Arab developmental model… seems to have passed its expiration date.” In a 2014 paper for the Journal of International Affairs, Malik said “failure of the Arab state to deliver social justice is ultimately rooted in the failure of a development model based on heavy state intervention in the economy and increasingly unsustainable buyouts of local populations through generous welfare entitlements.”
It’s a good point, for the region’s richest countries just as much as its poorest. Oil-rich states are affected by dramatic changes in oil prices and the increasingly urgent suggestion that the world is at “peak oil.” An IMF report warned that, by 2034, declining oil demand could erode the $2 trillion in financial wealth amassed by Gulf Cooperation Council members. The IMF said “faster progress with economic diversification and private sector development will be critical to ensure sustainable growth.”
Creativity and courage will be needed if the Arab world is to meet the expectations of its youthful population and the challenges posed by its increasing inequality.
It shows a score of 39, the same as last year. There seems to be little progress in improving control of corruption in the Middle East and North Africa region generally but the massive protests currently thronging the streets in mostly the republics types of states of the MENA could be taken as seeking for improvement. Excerpts of the Khaleej Times follow.
With a score of 71, the United Arab Emirates is the best regional performer, followed by Qatar (62). At the bottom of the region, Syria scores 13, followed by Yemen with a score of 15. Both countries are significant decliners on the CPI, with Yemen dropping eight points since 2012 and Syria dropping 13 points during the same period.
Lack of political integrity
The region faces significant corruption challenges that highlight a lack of political integrity. According to our recent report, Global Corruption Barometer — Middle East and North Africa, nearly one in two people in Lebanon is offered bribes in exchange for their votes, while more than one in four receives threats if they don’t vote a certain way.
In a region where fair and democratic elections are the exception, state capture is commonplace. Powerful individuals routinely divert public funds to their own pockets at the expense of ordinary citizens. Separation of powers is another challenge: independent judiciaries with the potential to act as a check on the executive branch are rare or non-existent.
To improve citizens’ trust in government, countries must build transparent and accountable institutions and prosecute wrongdoing. They should also hold free and fair elections and allow for citizen engagement and participation in decision-making.
The UAE has been rated least corrupt country, yet again, in the Middle East and North Africa by the Berlin-based Transparency International’s Corruption Perception Index (CPI) 2019.
Globally also, the country retained its 21st ranking, scoring 71 points.
At the bottom of the region, Syria scores 13, followed by Yemen with a score of 15. Both countries are significant decliners on the CPI, with Yemen dropping eight points since 2012 and Syria dropping 13 points during the same period.
“The region faces significant corruption challenges that highlight a lack of political integrity. According to our recent report, Global Corruption Barometer – Middle East and North Africa, nearly one in two people in Lebanon is offered bribes in exchange for their votes, while more than one in four receives threats if they don’t vote a certain way,” said Transparency International said in the report released on Thursday.
“To improve citizens’ trust in government, countries must build transparent and accountable institutions and prosecute wrongdoing. They should also hold free and fair elections and allow for citizen engagement and participation in decision-making,” it said.
With a score of 53, Saudi Arabia improved by four points since last year. In 2017, the Saudi Crown Prince Mohammad Bin Salman carried out an “anti-corruption” purge as part of his reform of the country.
Regionally, the UAE is followed by Qatar, Saudi Arabia, Oman, Jordan, Bahrain and Kuwait.
Globally, the top countries are New Zealand and Denmark, with scores of 87 each, followed by Finland (86), Singapore (85), Sweden (85) and Switzerland (85).
More than two-thirds of countries score below 50 on this year’s CPI, with an average score of just 43. Similar to previous years, the data shows that despite some progress, a majority of countries are still failing to tackle public sector corruption effectively.
“Governments must urgently address the corrupting role of big money in political party financing and the undue influence it exerts on our political systems,” said Delia Ferreira Rubio Chair Transparency International.
International collaboration is the only way to defeat it.
Corruption takes many forms. It is often thought of as a problem that mostly affects developing countries. But while the harm it does is magnified in poorer nations, corruption does not concern itself with national boundaries – it can be unearthed anywhere.
1. Across the EMEA region (that’s Europe, the Middle East, and Africa) and India almost half of all workers think bribery and corruption are acceptable if there is an economic downturn.
2. Corruption, bribery, theft and tax evasion, and other illicit financial flows cost developing countries $1.26 trillion per year. That’s roughly the combined size of the economies of Switzerland, South Africa and Belgium, and enough money to lift the 1.4 billion people who get by on less than $1.25 a day above the poverty threshold and keep them there for at least six years.
3. The Transparency International Corruption Perceptions Index scores 178 countries on their degree of corruption – 10 is the cleanest possible, and 0 indicates endemic corruption. In 2010, around three-quarters of all 178 scored lower than five.
4. As much as $132 billion is lost to corruption every year throughout the European Union’s member states, according to the EU Commissioner for Home Affairs.
What’s the World Economic Forum doing about corruption?
It hosts the Partnering Against Corruption Initiative (PACI), the largest global CEO-led anti-corruption initiative.
Realizing that corruption hampers growth and innovation, and increases social inequality, PACI aims to shape the global anti-corruption agenda.
Founded in 2004, it brings together top CEOs, governments and international organizations who develop collective action on corruption, transparency and emerging-marking risks.
PACI uses technology to boost transparency and accountability through its platform, Tech for Integrity. Show
5. Bangladesh is one of the world’s poorer countries. Around one-third of the population say they have been the victims of corruption, and an astonishing 84% of those households who had interacted with different public and private service institutions have been victims of corruption.
6. In war-torn Afghanistan, of the $8 billion donated in recent years, as much as $1 billion has been lost to corruption. Integrity Watch Afghanistan estimates bribe payments — for everything from enrolling in elementary school to getting a permit — exceed $1 billion a year.
7. In one Russian province, if you want to become a police officer you will probably have to pay around $3,000. To get a place in medical school, you will need to part with around $10,000. One consequence of this, according to the International Crisis Group, has been that some people have grown so disaffected that they have become drawn to Islamic extremism.
Opinion polls that contribute meaningfully to our collective understanding of the Middle East and opinions of Arabs across the region are vital. For too long, commentators and analysts, many in the West but elsewhere too, have presumed to know what Arabs think, to discuss the mind of the Arabs, or to buy into the group-think mirage of the region. It is ludicrous, of course, and as the latest Arab News poll highlights, opinions and views vary widely.
Just how significant a role religion does and should play in the lives and politics of the region is one of the great debates of the day. It matters in particular in two of the countries engulfed in serious protests at present: Iraq and Lebanon.
The headlines from this poll back up previous studies indicating that more people in the Arab world, whilst still seeing religion as an essential part of their lives, want to see a greater separation of religion and politics. They are less willing to support any extremist agenda.
Younger people are also veering away from religion more than previous generations. A BBC poll in 2018 indicated that Arabs were perhaps less religious than before, borne out by comparing it to a 2013 poll. This applies to many other areas of the world. Polls show that American Christians are also becoming less religious.
Such views figure highly in Iraq and Lebanon, where protesters over the last two months have been pushing for an end to sectarian models of government in an attempt to weaken divisive and counterproductive identity-driven politics.
Iraqis and Lebanese agree by 74 percent and 63 percent respectively that religion affects political decision-making by their government. And more than two-thirds of those polled in both countries do not dispute the statement that separation of religion and politics would lead to fewer wars.
Will they get their wish to rewrite their political systems? At present, despite the widespread and powerful nature of these protests, it would appear not. The existing elites in Iraq and Lebanon do not appear to be budging, and neither country looks like it is heading to a post- sectarian future anytime soon.
Strangely, however, the only politically significant leader in Iraq to be backing the protesters is Ayatollah Ali Al-Sistani, the pre-eminent Shiite cleric from Najaf, but many other clerics do not back this position. In Lebanon, Hezbollah has unambiguously opposed the protests. Its leader Hassan Nasrallah has accused the protesters of being foreign agents.
None of these polls will make much impact perhaps in Europe and North America. How many will take note and believe that the Arab world is changing and becoming more opposed to extremism? It runs counter to the well-oiled narrative common in the media.
Yet the Arab News poll is also revealing of what other challenges Arabs see as relevant to their future. Religion is not seen as some great threat, but what clearly keeps people awake is the state of the economy. Iraqis and Lebanese strongly agree (57 percent and 61 percent, respectively) that the future would be better if economic matters were prioritized above everything else.
It has been a core feature of the protests, of which corruption — seen as the top problem in both countries, where it is endemic — and youth unemployment have been among the primary drivers. One wonders why the figures are not even higher when you consider how resource-rich Iraq is, but how poor public services are, and how frequently useless the flabby institutions of state are.
Iraq and Lebanon face multiple challenges, but the study’s message is clear: Fixing the economy, stemming corruption and creating jobs should be the primary focus. How that will be done, particularly in a country as indebted as Lebanon, is at the heart of the current crisis.
The poll does reveal a perhaps surprisingly optimistic outlook. Most of those polled foresaw that extremism in the region was in decline, envisaging a drop in terrorism in the coming years. Only 28 percent saw radical Islam as having a negative impact on society in the Arab world, and just 15 percent saw extremism as the main cause of conflict in the region.
Western policymakers and media moguls should take note. Everyone must hope that they are right, even if the risks remain high. Increasingly, polling shows — as this one does — rising support for inclusiveness (especially women’s rights) and less aversion to women having a prominent role in political life. Both Iraq and Lebanon have a poor record on female involvement at the upper echelons of their politics.
Arabs polled also seem to be clear on the way forward. That matters. The economy must come first. To achieve that, they desire improved governance, with systems they can trust and where religion plays a part in daily life but less so in politics.
• Chris Doyle is director of the London-based Council for Arab-British Understanding (CAABU). He has worked with the council since 1993 after graduating with a first-class honors degree in Arabic and Islamic Studies at Exeter University. He has organized and accompanied numerous British parliamentary delegations to Arab countries. Twitter: @DoylechDisclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News’ point-of-view
Iraq’s recent wave of protests against poverty, a lack of basic services, unemployment, and the interference of Iran in the country’s domestic affairs showed a country at the end of its tether. Official figures put the number killed in the violent crackdown of protesters at 157.
The problems for Iraq are deep-rooted and institutional, and if not addressed may yet escalate into a full-scale revolution. What’s needed is reform of the country’s 2005 constitution, which was written during a period of political instability after a war and occupation ridden by conflict. The only way for Iraq to have a chance at prosperity and peace is by addressing its flawed foundations which were heavily influenced by the occupiers.
Iraq’s 2005 constitution, which was influenced by the US, failed to create a unified, representative government. Ambiguities within the document have been abused by those in power and it has exacerbated sectarian divisions within Iraq’s politics. The constitution created a system in which public sector and government roles are allocated based on sect and ethnicity.
Iraq has become a nation that is for the few and not the many, as unrepresentative Iraqi political elites bid to share out its resources. Millions of Iraqis are left unrepresented and without prospects.
While the majority of citizens are discontented and struggling, Iraq’s elites remain fortified and continue to govern through a system known as “wasta”, which involves serving those you favour and hold close, such as friends and family. Divides along ethnic and sectarian lines remain a key theme when identifying the causes of disagreement between competing sects who unite to form political blocs in Iraq’s government.
The lengthy government formation process that takes place after elections is dependent on the division of key state institutions based on ethnic and sectarian identities. To achieve this, political parties form blocs with and against each other to achieve their goals, with the biggest becoming the governing bloc. Although Iraqi elites are divided based on ethnicity, sect and religion, this race for power – and with it the ability to distribute and share the country’s resources – creates a unity between elites.
For example, in three separate parliamentary elections since 2003, the winning candidate has not become prime minister. In the 2014 elections, Nouri al-Maliki, as the head of the State of Law coalition, won the largest number of seats in parliament, yet due to disagreements over government formation and the fight against Islamic State, he was replaced by Haider al-Abadi. In the 2018 elections, Muqtada al-Sadr’s Saairun coalition won a majority, but it was eventually Adil Abdul-Mahdi, an independent, who was chosen as prime minister.
Ministerial fiefdoms where political parties are given ministries in exchange for support to form governing blocs have created a dysfunctional government. It means there is no clear governmental strategy, which in turn severely impedes development.
The mechanics of this power-sharing system are illustrated by coalitions of oligarchs who use public institutions to distribute favours to clients. Political parties control government procurement and reconstruction contracts, who either auction them off or set up shell companies to award contracts to themselves. These contracts are then sub-contracted, or simply never fulfilled, with funds ending up being drained in the process, ultimately benefiting a narrow Iraqi elite. Iraq was ranked 168 out of 180 countries in Transparency International’s 2018 corruption perception index.
In order for Iraq to ever be able to meet the growing demands of its people and the challenges of prospering on the global stage, immediate political reform is needed. The reform process must directly address the rushed and divisive constitution. This needs to be followed by the democratisation of Iraq’s institutions and the re-creation of Iraq’s national identity so the country can escape the worst of its sectarianism and become more unified as a nation.
Without all of these issues addressed with equal importance, the cycle of adversity will continue as Iraq will remain a reactive as opposed to proactive nation.
Lebanon pushed to the brink, faces reckoning over graft after allies, investors, protesters press for change in the country as per Jonathan Spicer, Tom Perry and Samia Nakhoul, Reuters News in this ECONOMY‘s article dated 21 October 2019.
BEIRUT – Lebanon is closer to a financial crisis than at any time since at least the war-torn 1980s as allies, investors and this week nationwide protests pile pressure on the government to tackle a corrupt system and enact long-promised reforms.
Prime Minister Saad al-Hariri‘s government on Thursday hastily reversed a plan, announced hours earlier, to tax WhatsApp voice calls in the face of the biggest public protests in years, with people burning tyres and blocking roads.
The country – among the world’s most indebted and quickly running out of dollar reserves – urgently needs to convince regional allies and Western donors it is finally serious about tackling entrenched problems such as its unreliable and wasteful electricity sector.
Without a foreign funding boost, Lebanon risks a currency devaluation or even defaulting on debts within months, according to interviews with nearly 20 government officials, politicians, bankers and investors.
Foreign Minister Gebran Bassil said in a televised speech on Friday that he gave a paper at an economic crisis meeting in September saying Lebanon needed “an electric shock”.
“I also said that what little remains of the financial balance might not last us longer than the end of the year if we do not adopt the necessary policies,” he said, without describing what he meant by financial balance.
Beirut has repeatedly vowed to maintain the value of the dollar-pegged Lebanese pound and honour its debts on time.
But countries that in the past reliably financed bailouts have run out of patience with its mismanagement and graft, and they are using the deepening economic and social crisis to press for change, the sources told Reuters.
These include Arab Gulf states whose enthusiasm to help Lebanon has been undermined by the growing clout in Beirut of Tehran-backed Hezbollah, and what they see as a need to check Iran’s growing influence across the Middle East.
Western countries have also provided funds that allowed Lebanon to defy gravity for years. But for the first time, they have said no new money would flow until the government takes clear steps toward reforms it has long only promised.
Their hope is to see it move towards fixing a system that sectarian politicians have used to deploy state resources to their own advantage through patronage networks instead of building a functional state.
A crisis could stoke further unrest in a country hosting some 1 million refugees from neighbouring Syria, where a Turkish incursion in the northeast this month has opened a new front in an eight-year war.
“If the situation remains, and there are no radical reforms, a devaluation of the currency is inevitable,” said Toufic Gaspard, a former adviser to Lebanon’s finance ministry and former economist at its central bank and the International Monetary Fund.
“Since September a new era has begun,” he added. “The red flags are large and everywhere, especially with the central bank paying up to 13% to borrow dollars.”
The first reform on Beirut’s agenda is one of the most intractable: fixing chronic power outages that make private generators a costly necessity, a problem many see as the main symbol of corruption that has left services unreliable and infrastructure crumbling.
Hariri, in a televised speech to the nation, said he had been struggling to reform the electricity sector ever since taking office. After “meeting after meeting, committee after committee, proposal after proposal, I got at last to the final step and someone came and said ‘it doesn’t work’,” he said.
Presenting the difficulties of implementing reform more widely, Hariri said every committee required a minimum of nine ministers to keep everyone happy.
“A national unity government OK, we understand that. But committees of national unity The result is that nothing works.”
Underscoring the pressure from abroad, Pierre Duquesne, a French ambassador handling so-called CEDRE funding, is traveling to Lebanon next week to press the government on the use of offshore power barges, a banker familiar with the plan said.
Duquesne wants the barges included in the electricity overhaul plan, the person said, requesting anonymity.
Duquesne could not immediately be reached for comment.
The contents of the 2020 budget will be key to helping unlock some $11 billion conditionally pledged by international donors under last year’s CEDRE conference. But a cabinet meeting on the budget set for Friday was cancelled amid the protests.
Hariri’s government, which includes nearly all of Lebanon’s main parties, had proposed a tax of 20 cents per day on calls via voice-over-internet protocol (VoIP) used by applications including WhatsApp, Facebook FB.O and FaceTime.
In a country fractured along sectarian lines, the protests’ unusually wide geographic reach may be a sign of deepening anger with politicians who have jointly led Lebanon into crisis.
Fires were smoldering in central Beirut, where streets were scattered with glass of several smashed shop-fronts. Tear gas was fired on some demonstrators.
The newspaper an-Nahar described it as “a tax intifada”, or uprising. Another daily, al-Akhbar, declared it “the WhatsApp revolution”.
“With this corrupt authority, our kids have no future,” said protestor Fadi Issa, 51. “We don’t just want a resignation, we want accountability. They should return all the money they stole. We want change.”
As confidence has faded and dollars have grown scarce, new cracks have emerged between Lebanon’s government and its private lenders, according to several of the bankers, investors and officials who spoke to Reuters.
After years of funding the government with the promise of ever higher rates of return, the banks – sensing the country is approaching collapse – are pressing for it to finally deliver reforms to win over donors.
Most said Lebanon would likely feel more economic and financial strain in the months ahead but avoid haircuts on deposits or a worst-case sovereign default.
Yet Beirut’s years of failure to deliver reforms and the new determination among its traditional donors to press for them has left even top officials, bankers and investors divided over whether a devaluation is in store for the Lebanese pound.
“You need a positive shock. But unfortunately the government thinks reforms can happen without touching the structure that benefits them,” said Nassib Ghobril, head of economic research and analysis at Byblos Bank.
Lebanon must promote reforms to increase capital inflows, he said.
“We can’t keep going to the Emirates and Saudis. We need to help ourselves in order for others to help us.”
This month, Moody’s put Lebanon’s Caa1 credit rating under review for a downgrade and estimated the central bank, which has stepped in to cover government debt payments, had only $6 billion-$10 billion in useable dollars left to maintain stability.
That compares with some $6.5 billion in debt maturing by the end of next year.
The central bank says its foreign assets stood at $38.1 billion as of Oct. 15.
An official told Reuters Lebanon has only $10 billion in real reserves. “It is a very dire situation that has five months to correct itself or there will be a collapse, around February,” he said.
Hariri’s government may have only a few months to deliver fiscal reforms to convince France, the World Bank and other parties to the CEDRE agreement to unlock $11 billion in conditional funding.
The head of regional investments for a large U.S. asset manager said Lebanese officials are privately saying a plan that addresses short- and long-term electricity shortages will be announced before year-end, after which the government will raise tariffs.
But critics say no concrete steps have been taken despite energy ministry statements that the plan is on track.
Hariri left Paris last month with no immediate cash commitment after visiting French President Emmanuel Macron. Likewise this month he left Abu Dhabi empty-handed after meeting Crown Prince Sheikh Mohammed bin Zayed al-Nahyan.
Lawmakers in Beirut struggled to explain what happened in Abu Dhabi after Hariri claimed the United Arab Emirates had promised investments following “positive” talks.
EYES ON HEZBOLLAH
Investors, bankers and economists say at least $10 billion is needed to renew confidence among the Lebanese diaspora whom for decades have underpinned the economy by maintaining accounts back home.
But so far this year, deposits have shrunk by about 0.4%.
The government has sought a smaller cushion from Sunni Muslim allies to buy some time. But to secure funding from the UAE or Saudi Arabia, Beirut would likely have to meet conditions meant to weaken Shi’ite Hezbollah’s hand in Lebanon’s government, said several sources.
Hezbollah, which faces U.S. sanctions, is seen to be gaining more control over state resources by naming the health minister in January after last year’s elections brought more of its allies into the legislature.
Some say Saudi Arabia, UAE and the United States are motivated to hold out on Beirut as part of their wider policy seeking to weaken Iran and its allies which have been fighting proxy wars with Gulf Arab states on several fronts.
“Their tolerance of Iran and Hezbollah has lowered significantly. The ‘Lebanese exception’ is gone,” said Sami Nader, Beirut-based director of the Levant Institute for Strategic Affairs.
“The balance has tilted and we are now at odds with our former friends because Hezbollah now has the upper hand politically.”
The former regional head at a major Western bank put it bluntly: “People have lost patience with the corruption in which a frozen Parliament with no authority is simply divvying up the pie among politicians.”
“But at the end of the day the Lebanese political class usually succeeds in convincing allies that they should not let the system collapse and bring civil war again,” he added.
Lebanon, straddling the Middle East’s main sectarian lines, was historically the region’s foreign-exchange hub into which deposits flowed, especially since 1997 when its currency was pegged to the dollar at 1,507.5 pounds.
But after a reckoning in August and September in which the cost of insuring Lebanon’s sovereign debt surged https://tmsnrt.rs/2MORZfM to a record high, things have changed.
Depositors, including the diaspora drawn by rates much higher than in Europe or the United States, are pulling funds in the face of Lebanon’s swelling twin deficits, inability to secure foreign funding, and unorthodox central bank efforts to attract dollar inflows.
Among Lebanon’s 6 million citizens, trust has worn thin.
Depositors can no longer easily withdraw dollars, and most ATMs no longer provide them, forcing people to turn to so-called parallel FX markets where $1 is worth more than the official peg.
“I am with the protesters,” said Walid al-Badawi, 43. “I have three children, I am a taxi driver, I work all day to get food for my kids and I can’t get it.”
Gaspard, the central bank’s former research head, said foreign exchange was easy even through Lebanon’s 15-year civil war. There was also always a balance of payments surplus – until 2011 when deficits began to grow, reaching $12 billion last year.
LOST RESOLVE AT BANKS
Three events precipitated the crisis of confidence that for years seemed inevitable: a series of central bank efforts since 2016 to keep growing deposits with rates of more than 11% on large deposits; a public sector pay hike last year that raised the budget deficit to more than 11% of GDP; low oil prices in recent years that have weakened Gulf allies.
In a report on Thursday, the IMF described Lebanon’s position as “very difficult,” adding “substantial new measures” are needed to protect it and reduce large deficits.
As dollars have dried up, banks have effectively stopped lending and can no longer make basic foreign-exchange transactions for clients, one banker said.
“The whole role of banks is to pour money into the central bank to finance the government and protect the currency,” he said. “Nothing is being done on the fiscal deficit because doing something will disrupt the systems of corruption.”
The resistance from banks has been subtle but telling given their central role in financing the government.
When Beirut proposed a $660 million reduction in debt service costs in its 2019 budget, banks never signed up to the idea. They have also been less enthusiastic about subscribing to Eurobonds including a planned $2-billion issuance later this month, officials said.
Without reform, “banks agree we can no longer support the public sector,” said Byblos Bank’s Ghobril.
(Reporting by Jonathan Spicer, Tom Perry and Samia Nakhoul; Additional reporting by Yara Abi Nader and Ellen Francis in Beirut and John Irish in Paris; Editing by Hugh Lawson) ((email@example.com; Reuters Messaging: firstname.lastname@example.org @jonathanspicer))
The political impasse in which Algeria has been mired for more than seven months would result in a sharp economic slowdown in the short term. This Algeria’s Political deadlock and economic breakdown that the World Bank forecasters have reached is by any means comprehensive but could be read as some sort of alert.
The institution expects non-hydrocarbon sectors, as well as all oil and gas-related activity, to run through an air hole this year; which should have some unavoidable consequences on the country’s GDP growth. In effect, in similar way to other developing countries, it is expected to come down to 1.3% in 2019 from 1.5% the previous year.
“Uncertainty policy is expected to lead to a slowdown in the non-hydrocarbon sector in 2019,” reads a World Bank report released last Thursday. The Bretton Woods institution has not failed to highlight the impact of the arrests of business leaders on investment morality grounds or lack of these, and more generally, on the economy. “Business leaders from various sectors were arrested in connection with corruption investigations, which has disrupted the economy due to sudden changes in the direction and supervision of these companies, as well as uncertainty over investment,” the same report said. Since the beginning of the crisis, a wave of arrests affected the business community, public institutions, banks and social bodies alike. This blocking situation had worsened over the weeks; appropriation sets did not meet, officials at the level of economic administration were careful not to take the slightest risk. That is to say how violent the shock wave was. The impact on the economy could be disastrous as the situation continues to worsen by the day. As such, the World Bank (WB) estimates that “the pre-election period also risks further delaying the fiscal consolidation process scheduled for 2019, increasing the budget deficit to 12.1% of GDP and increasing the risk of a more abrupt adjustment in the future.” For the WB, widening budget and current account deficits is almost inevitable. While the fiscal deficit would be unlikely to be reduced internally, “on the external front, the current account deficit is expected to widen to 8.1% of GDP, mainly due to a significantly larger trade deficit.”
Investment is being impacted
“As the course of political events is expected to have an impact on economic activity, it is also expected that more resources will be allocated to social measures, to the detriment of public investment spending,” the Bank predicts. The report, stating that “private sector activity and investment will be affected by political disruptions and an unfavourable business climate, as well as disruptions caused by delays in payment of workers in several industries.” This is the case, since the draft Finance Bill 2020 foresees a sharp decline in capital expenditure, to the tune of 20.1%, while operating expenses and social transfers are maintained as they are. WB experts are merely saying out loud what Algerian economists and operators are thinking, warning of a situation that could go along if solutions to the political impasse run out. “The delays at the end of the political impasse and political uncertainty could further damage the country’s economy, leading to increased imports and further dwindling foreign exchange reserves,” concludes the WB report. Moreover, macroeconomic indicators are unlikely to improve at any time under current political conditions.
Economic growth to only 1.9% in 2020
Moreover, against a background of falling capital spending and low morale among investors, the growth of the Algerian economy would be only 1.9% in the year 2020. A stagnation is due in particular to the “slow” growth of the hydrocarbons sector, combined with the contraction in economic activity, which has limited growth in non-hydrocarbon sectors, according to the WB’s economic monitoring report released on Thursday. “Growth in the hydrocarbon sector has been slow, with economic activity contracting by 6.5% and 7.7% in 2018 and the first quarter of 2019, respectively, partially off-sparing the effects of the slight increase in non-core growth 3.4% and 3.9% in 2018 and the first quarter of 2019, respectively,” the WB noted. The tiny increase in investment in the first half of the year (4.9%) was driven by public investment in construction, public works and hydraulics, as a result of the expansion of social housing programmes, the WB said. Furthermore, the institution believes that “the recent discovery of a new gas field suggests a rebound in gas production and exports, but only in the medium term, and if and only if the framework for investment in hydrocarbons lends it to it.” The World Bank is merely bringing water to the government’s mill, which has called the enactment of the new hydrocarbon law urgent.
Streets demonstrations in the vast and populous countries of the MENA region’s Algiers, Khartoum, Cairo and finally, Bagdad chasing some long-time running democratic awakening appear to be stalling. However, these capital cities of the so-called republics’ populations seem to be going through a quasi-general disenchantment with their respective establishments because of all the prospects for future development in political and security terms have become uncertain given this sudden but not surprising worsening regional situation. Like throughout all these countries, Iraq protests expose the fallacy of the country’s democracy. Technological advances in the world and their penetration in the MENA region could definitely be behind all these upheavals.
Whether these media as social or just digital distribution of news, they did help to connect citizens and build linkage to an unprecedented level. Government organisations always in desperate need of credibility fell short to keep up with how fast the region’s peoples demands of more democracy, etc. This article elaborates on the specifics of Iraq’s.
Violent crackdown against Iraq protests expose fallacy of the country’s democracy
When Muhanad Habib, a 22-year-old Iraqi from the Sadr City district of Baghdad, posted on Facebook in late September, he probably didn’t imagine that his demands for a better life and basic rights would be met with bullets.
It will be a huge and angry public revolution in Baghdad … We will take to the streets protesting … Enough silence about what’s going on in Iraq. We cannot just watch Iraq being destroyed when we have armies of jobless and poor.
This was how it all started. Angry youth from Baghdad took to the streets. Unaffiliated with any political party or with well-known activists, the protesters – the majority of whom were born in the late 1990s or early 2000s – despaired about any prospect for change in Iraq.
Yet, Salih’s statement raised questions about who is actually running the Iraqi state. And despite his and international condemnation, the crackdown continues on the ground.
Calls for a homeland
Endemic corruption, unemployment, flawed institutions and poor public services linger in Iraq and have prompted protests since 2011, including notably in Basra in 2018. The recapture of Iraqi lands from the grip of Islamic State (IS) gave many Iraqis hope that lessons would be learnt about the repeated failures which gave rise to IS, and that those in power would take sincere steps to reform. But that hope has been diminishing every day.
The most recent protests came in the wake of multiple smaller demonstrations by different groups, including PhD graduates, doctors and engineers in September 2019.
They followed government actions that caused widespread anger. Impoverished people were outraged at a recent state campaign to destroy unlicensed properties and market stalls across Iraq, leaving many homeless and jobless.
It also followed the removal of a key general, Abdul Wahab Al Saadi, from his position as commander of the Counter-Terrorism Service, followed by his demotion to a lower post at the Ministry of Defence. The marginalisation of a figure admired for his role in the military campaign against IS enraged many Iraqis.
The new generation want a homeland. “We want a respected homeland,” and “I am taking to the streets to get my right,” were among the slogans on display during the protests. “The issue is not about water or electricity, but about a homeland,” shouted another protester.
The immediate crackdown of the protests has surprised, shocked, and shaken Iraqis. The suppression turned a protest about anti-corruption and unemployment into an uprising against the status quo and what participants see as foreign interference, particularly from Iran.
Tear gas, live ammunition, and snipers were used to quell the protesters. As one protestor put it: “They did things to us they never did to IS. They beat and insulted us. They used live fire and grenades. What have we done? All what we are asking for are our rights and all people’s rights.” The protestor’s words were used as the opening of a new rap song titled “Iran’s tails” released in the wake of the crackdown by an Iraqi expat in solidarity with the demonstrators.
The violent oppression and state’s authoritarian measures to cover up the carnage are reminiscent of the days of Baathist rule and former president Saddam Hussein’s oppression of a 1991 uprising. In 2019, such measures included an internet blackout across Iraq except in the Kurdistan region, curfews in Baghdad and other provinces in the south, and blocked roads leading to Tahrir square in Baghdad where demonstrators gathered. Comparisons were also made with IS, who also cut off the internet in Mosul when Iraqi troops were advancing to retake the city in 2016.
Offices of media agencies covering the protests were attacked and reports emerged of protesters, activists and journalists being threatened and arrested.
By disconnecting Iraqis from the outside world, the authorities in Iraq tried to control the circulation of videos that showed civilians killed in broad daylight. But they also pushed the narrative of Iran-backed political parties and officials: that “intruders” – an implicit reference to Baathists or actors backed by an external agenda – were responsible for riots. A similar narrative was echoed by Iranian media outlets to undermine the legitimacy of the protests, accusing foreign powers of being behind them, an indirect reference to the US, Israel and Saudi Arabia.
Despite the internet blackout, which remains partially in place, footage of the live shooting at the protestors and ambulances carrying the wounded were shared on social media as some Iraqi protesters resorted to innovative methods with the help of Iraqi expats to reveal the scale of the violence.
The heartbreaking scenes caused uproar among the Iraqi diaspora who protested in several countries around the world in solidarity. But for people inside Iraq, many still don’t know the scale of the atrocities as they haven’t been able to access social media sites.
The fallacy of democracy
Since the fall of Hussein’s regime in 2003, successive governments have failed to put an end to Iraqis’ grievances. Time and again, only empty promises were made, and superficial measures taken. The electoral system has helped to produce and perpetuate a hybrid form of kleptocracy, authoritarianism and kakistocracy – a government run by the worst, or most unscrupulous people. Armed groups, tribes, foreign powers and religious clergy have all maintained this system.
The latest protests may have been suppressed but they revealed that democracy in Iraq is nothing but a facade. What sort of democratic government kills its own people, taking away their hopes and dreams? And can it still be called legitimate? Reacting indifferently to the deadly crackdown of innocent people in Iraq, the world needs to at least recognise that the root causes of Iraq’s ills are in the post-2003 system itself.
Romain Duval and Davide Furceri, authors of this article that obviously elaborates on the currently so-called developing countries. It does not ignore that there is some differentiation between oil and/or other scarce natural resources and the non-exporters of the same. It might as well be talking about these two categories of countries but perhaps along with the character traits described in the image below. Why you might wonder. Simply because How To Reignite Growth in Emerging Market and Developing Economies as developed here, could well apply to all countries in the MENA region, perhaps worldwide not for the same reasons.
Let us, in the meantime, read what they say.
Emerging markets and developing economies have enjoyed good growth over the past two decades. But many countries are still not catching up with the living standards of advanced economies.
At current growth rates, it would take more than 50 years for a typical emerging market economy to close half of its current income gap in living standards, and 90 years for a typical developing economy.
Our research in Chapter 3 of the October 2019 World Economic Outlook finds that implementing major reforms in six key areas at the same time—domestic finance, external finance, trade, labor markets, product markets, and governance—can double the speed of income convergence of the average emerging market and developing economy to the living standards of advanced economies. This could raise output levels by more than 7 percent over a six-year period.
Structural reforms can yield sizable payoffs.
More room for reforms
Policies that change the way governments work—known as structural reforms—are difficult to measure. They often involve policies or issues that are not easy to quantify, such as job protection legislation or the quality of supervision of the domestic banking system.
To address this, the IMF recently developed a comprehensive dataset covering structural regulations in domestic and external finance, trade, and labor and product markets. The data cover a large sample of 90 advanced and developing economies during the past four decades. To the five indicators, we added the quality of governance (for example, how countries control corruption) from the World Governance Indicators.
The new indicators show that, after the major wave of reforms in the late 1980s and—most importantly—the 1990s, the pace slowed in emerging market and developing economies during the 2000s, especially in low-income developing countries.
While this slowdown reflects the prior generation of reforms, as in advanced economies, there remains ample room for a renewed reform push, particularly in developing economies—notably, across sub-Saharan Africa and, to a lesser extent, in the Middle East and North Africa and the Asia-Pacific region.
Reforms can boost growth and living standards
Based on our empirical research of reforms in 48 current and former emerging markets and 20 developing economies, we find that reforms can yield sizable payoffs. But these gains take time to materialize and vary across different types of regulations. For example, a domestic finance reform of the size that took place in Egypt in 1992 leads to an increase in output of about 2 percent, on average, six years after implementation. We get a similar result for anti-corruption measures, whose effects are sizable in the short run and stabilize at around 2 percent in the medium term. In the other four reforms areas—external finance, trade, product markets, and labor markets—the gains are about 1 percent six years after the reform.
For the average emerging market and developing economy, the results imply that major simultaneous reforms across all six areas considered in this chapter can raise output by more than 7 percent over a six-year period. This would increase annual per capita GDP growth by about 1 percentage point, doubling the average speed of income convergence to advanced-country levels. Model-based analysis—which captures the longer-term effect of reforms and provides insights on the channels through which they affect economic activity—points to output gains about twice as large as the empirical model over the longer term (beyond 6 years).
One channel through which reforms increase output is by reducing informality. For example, lowering barriers to businesses’ entry in the formal sector encourages some informal companies to become formal. In turn, formalization boosts output by increasing companies’ productivity and capital investment. For this reason, the payoff from reforms tends to be larger where informality is pervasive.
Getting the timing, packaging and sequencing right
Some reforms work best when the economy is strong. In good times, reducing layoff costs makes employers more willing to hire new workers, while in bad times it makes them more willing to dismiss existing ones, magnifying the effects of a downturn. Similarly, increasing competition in the financial sector at a time of weak credit demand may push certain financial intermediaries out of business, further weakening the economy.
In countries where the economy is weak, governments may prioritize reforms—such as strengthening product market competition—that pay off regardless of economic conditions, design others to alleviate any short-term costs—such as enacting job protection reforms now with a provision that they will take effect later. These reforms can also be accompanied with monetary or fiscal policy support where possible.
Reforms also work best if properly packaged and sequenced. Importantly, they typically deliver larger gains in countries where governance is stronger. This means that strengthening governance can support economic growth and income convergence not just directly by incentivizing more productive formal enterprises to invest and recruit, but also indirectly by magnifying the payoff from reforms in other areas.
Finally, to fulfill their promise of improving living standards, reforms must be supported by redistributive policies that spread the gains widely across the population—such as strong social safety nets and programs that help workers move across jobs. For reforms to be sustainable and therefore effective, they need to benefit not just some, but all.
About the IMF Blog
IMFBlog is a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.
Gulf wealth: all that glitters is not gold. Little suggests that fabulously wealthy Gulf states and their Middle Eastern and North African beneficiaries have recognized what is perhaps the most important lesson of this year’s popular uprisings in Algeria and Sudan and the 2011 Arab revolts: All that glitters is not gold.
Saudi Arabia, the United Arab Emirates and to a lesser extent Kuwait have in the last decade invested billions of dollars in either reversing or hollowing out the revolts’ achievements in a bid to ensure that political change elsewhere in the region does not come to haunt them.
Qatar, in a counterintuitive strategy that has earned it the ire of the rulers of Saudi Arabia and the UAE, has sought to achieve the same goal by attempting to be on the right side of the region’s forces of change.
The irony is that both approaches, despite also involving huge investments at home in economic diversification, education, and healthcare, could produce the very result Gulf states seek to avoid: a region that has many of the trappings of 21st century knowledge states but that is incapable of catering to the aspirations of a youth bulge expected to annually increase the work force by a million people over the next 12 years.
UNICEF, the United Nations Children’s Fund, concluded earlier this year, that the region’s youth bulge was a double-edged sword. It could either pose a threat to regional stability or be an asset for development.
Turning the youth bulge into an asset “requires urgent and significant investment to create opportunities for meaningful learning, social engagement and work, all of which are currently limited, particularly for young women and the most vulnerable,” the UN agency said in a report entitled MENA (Middle East and North Africa) Generation 2030.
UNICEF arrived at its conclusion even though Gulf states have adopted grandiose plans that envision them becoming within a matter of a decade or two diversified, knowledge-driven economies that enact the social reforms needed to create opportunity for all segments of society.
The group’s conclusion applies as much to the wealthy Gulf states as it does to the Arab beneficiaries of their politically motivated financial largesse.
The problems with the flexing of the Gulf states’ financial muscle as well as the implementation of reform plans are multi-fold.
They relate as much to quality of the upgrading of services such as education as they are about how political intent shapes development efforts and how high domestic debt in countries like Egypt, where 27 percent of government expenditure goes to interest payments, and Lebanon, which spends 38 percent of its budget on debt servicing, benefits Gulf banks and stymies social and economic development.
Credit rating agency Fitch recently downgraded Lebanon’s credit rating to CCC from B- because of “intensifying pressure on Lebanon’s financing model and increasing risks to the government’s debt servicing capacity.”
“In Lebanon, just over 50 percent of the country’s bank assets are held by GCC-related banks, in Palestine this figure is 63 per cent, and in Jordan it is as high as 86 percent,” Mr. Advani wrote in a review of political economist Adam Hanieh’s study of Gulf finance, Money, Markets, and Monarchies.
Mr Hanieh argues that the bulk of the debt payments are to financial establishments whose major shareholders include Gulf institutions in a process in which “the Arab state…increasingly mediates the transfer of national wealth to large Gulf-related banks.”
Mr Advani warned that “indebted governments are compelled to intensify a politics of austerity, further trapping these societies in cycles of debt. Investments in social programs or infrastructural developments are often stalled. Popular movements are unable to realize their demands at the state level due to the requirements of foreign creditors and domestic capitalists. The ensuing scenario is one where alternative politics are asphyxiated and increasingly circumscribed by an atrophied status quo.”
That may well be the purpose of the exercise with economic diversification efforts in the Gulf being driven more by the need of autocracies to upgrade their autocratic style and create opportunity for a restive youth in a bid to ensure regime survival rather than by the acknowledgement of a government’s responsibility to serve the people.
The result is a flawed approach to all aspects of reform.
In Saudi Arabia, Crown Prince Mohammed bin Salman’s Vision 2030 economic and social reform plan that calls for greater private sector involvement has turned into a top down effort that emphasizes state control with the government’s Public Investment Fund (PIF) as the key player.
A combination of depressed oil prices and the recent replacement of energy minister Khalid al-Falih as chairman of the board of Aramco by PIF head Yasir al-Rumayyan, a close associate of Prince Mohammed, raises questions about the state oil company’s positioning in advance of a much-touted initial public offering.
Ellen Wald, an energy analyst and author of a history of Aramco, the kingdom’s main source of revenue, noted that at PIF Mr. Al-Rumayyan had overseen investments more geared towards speculative gains than the sustainable growth of Saudi wealth.
Nonetheless, Ms Wald cautions that Mr Al-Rumayyan’s appointment “doesn’t necessarily bode well for Aramco, which is a different kind of company. It has to make stable decisions for the long term,” she said.
By the same token, UNICEF warned that poverty, violent conflict, restrictive social norms, patriarchy, rights violations and lack of safe spaces for expression and recreation were limiting opportunities as well as civic adolescent and youth engagement.
Gulf emphasis on geopolitical dominance, regime survival and return on financial investment produces short term solutions that often exacerbate conflict, produce little trickle-down effect and few prospects for long-term stability.
“As a result, adolescents and youth in MENA (the Middle East and North Africa) feel disillusioned, with girls and young women, refugees, those with disabilities and the poor being particularly marginalised and underrepresented,” the UNICEF report said.
“Youth unemployment in the region is currently the highest in the world. Education systems are failing to prepare adolescents and youth for the workplace, and markets are not generating urgently needed jobs,” the report warned.
Gulf wealth glitters but if the UNICEF report is anything to go by, it has yet to demonstrate that it can produce the gold of a development that is sustainable and benefits not only all segments of Gulf societies but also of those across the region that have become dependent on it.
Dr James M. Dorsey is a senior fellow at Nanyang Technological University’s S. Rajaratnam School of International Studies, an adjunct senior research fellow at the National University of Singapore’s Middle East Institute and co-director of the University of Wuerzburg’s Institute of Fan Culture.
The six Gulf Co-operation Council (GCC) states have used their oil exports revenues of the past years not only to spend lavishly but to plan for a peaceful and serene future. So English football: a proxy battleground for feuding Gulf states?
Decades earlier, low oil prices meant economic disaster for a region that once controlled the world’s leading energy supplies impacting their sovereign wealth fund holdings. The ‘rentier’ states had to cope, some for the first time, with rising budget deficits. They had to conjure up policies to make good use of the classic rentier state economy involving a reduction in their dependence on oil revenues. A historical shift was handled quite artfully with notable policies of diversification of the respective economies and eventually getting hold of some ‘Soft Power’. Education, Sports and TV Entertainment or News channels amongst many other sectors of human activities were not precisely only bad earners in terms of Dollars. While there seems to be no question about the proceeds from the sector as mentioned earlier’s sales, these might have been central to the development of the Gulf States rivalries, eventually leading to the enduring present day blockade of Qatar.
So: English football: a proxy battleground for feuding Gulf states?
There’s nothing like a Saturday night scoop to get social media buzzing. Revelations that a Qatari investor wants to acquire a stake in Leeds United certainly did. If the story is correct, then it seems Qatar Sports Investments (QSI), which already owns French club Paris Saint-Germain (PSG), is interested in buying shares in the Yorkshire based English Championship football club.
That a Qatari group is showing interest should be no surprise either; after all, the Yorkshire outfit already has a partnership with the small Gulf nation’s Aspire Academy. Over the last two years, rumours have been recurrent that big money from Doha will, sooner or later, be invested.
Hence, it was the timing of the latest rumour’s emergence that was actually more revealing than the rumour itself. It came after a tumultuous week in football (and sport more generally) which was stitched together by a narrative stretching from Manchester, through Paris, to Doha and Abu Dhabi.
A big week for Qatar
The previous weekend, Abu Dhabi-owned Manchester City won the English FA Cup, which ensured the club secured an unprecedented domestic treble of trophies (alongside the club’s Premier League title and Carabao Cup win). City’s success, however, was very quickly tempered by stories that UEFA may ban the club from the Champions League for what are alleged to be serious breaches of the European football governing body’s Financial Fair Play regulations.
Later in the week, news came through that two PSG board members – Nasser Al-Khelaifi and Yousef Al-Obaidly – are being investigated on suspicion of corruption in connection with Qatar’s bid to host the 2019 IAAF World Athletics Championship in Doha. Significantly, Al-Khelaifi is president of PSG but also chairman of QSI (the Qatari investment group behind the alleged Leeds bid) and a member of UEFA’s executive committee. Al-Obaidly is chief executive of the Qatari media group beIN.
It was quite a week for the Qataris, as news also broke that FIFA will concede during its forthcoming council meeting that the 2022 World Cup will be contested by 32 teams. FIFA had been pressing for an increase in tournament size to 48 teams, though this would have necessitated Qatar sharing the tournament with at least one other country. Qatar, though, is currently engaged in an acrimonious feud with its near neighbours, notably the United Arab Emirates (UAE), Saudi Arabia and Bahrain, so FIFA’s capitulation was effectively a victory for Qatar over its rivals.
The Gulf feud is ongoing, having broken out two years ago following a visit to Riyadh by a bellicose Donald Trump. Since then, all manner of tactics have been used by the countries involved, ranging from heavy political lobbying in Washington DC through to an online war in which misinformation has been spread.
Qatar hasn’t stood idly by in the face of such provocation, often spending lavishly both to demonstrate its oil and gas fuelled economic strength and to project its soft power. The world record breaking transfer of Brazilian international Neymar, from FC Barcelona to PSG, is the most potent symbol of this, as the government in Doha set out to shift attention away from its rivals while simultaneously making a statement about the aspirations of Qatar.
As such, the news that QSI may be circling Leeds United doesn’t seem to be about a Qatari penchant for Yorkshire puddings, nor is it merely a nice opportunity to generate some Saturday night clickbait. Rather, it suggests the opening of another front in a feud which, instead of resolving itself, appears to be intensifying. Rather than being the dawn of a new era for Leeds United, the club may consequently be on the cusp of being drawn into a bitter battle of competing geopolitical interests.
The dense network of connections and conflicts between the likes of Qatar Sports Investments, Saudi Arabia, UEFA and Abu Dhabi may therefore be about to span the English Pennines, sparking a new War of the Roses between Yorkshire and Lancashire. Given the on-off speculation about Saudi Arabia’s purchase of Manchester United, and Abu Dhabi’s continued lavishing of its wealth upon Manchester City (as well as its rumoured acquisition of Newcaste United), these Gulf states are strengthening their hold over Lancashire, the western side of the Pennines, and possibly further north too.
In buying Leeds United, their rival, Qatar, would be shoring up its own defences in neighbouring Yorkshire, meaning that the Gulf region’s proxy war could spill over into English football. Thus, as fans on both sides of a historic English divide anticipate the prospect of their clubs’ battle for supremacy, they should remain mindful that Elland Road and the Etihad Stadium could become modern day proxy battlefields in a new stand-off between the houses of York and Lancaster.
The IMFBlog on May 28, 2019, is about a world phenomenon that seems to still be present in all walk of life throughout the world. The Costs of Corruption running deep in the MENA, have been amplified by the hydrocarbon-related rentier economies to a point where only a defossilisation of the respective economies could somehow reduce their extent. In the meantime, costs of corruption running deep in the MENA seem to go unattended to. Anyway here is this IMFBlog article.
The costs of corruption run deep. Your
taxpayer dollars are lost in different ways, siphoned off from schools, roads,
and hospitals to line the pockets of people up to no good.
Equally damaging is the way it corrodes the
government’s ability to help grow the economy in a way that benefits all
And no country is immune to corruption. Our
Chart of the Week from the Fiscal Monitor
analyzes more than 180 countries and finds that more corrupt countries collect
fewer taxes, as people pay bribes to avoid them, including through tax
loopholes designed in exchange for kickbacks. Also, when taxpayers believe
their governments are corrupt, they are more likely to evade paying taxes.
The chart shows that overall, the least corrupt governments collect 4 percent of GDP more in tax revenues than countries at the same level of economic development with the highest levels of corruption.
A few countries’ reforms generated even higher
revenues. Georgia, for example, reduced corruption significantly and tax
revenues more than doubled, rising by 13 percentage points of GDP between 2003
and 2008. Rwanda’s reforms to fight corruption since the mid-1990s bore fruit,
and tax revenues increased by 6 percentage points of GDP.
These are just two examples that demonstrate that
political will to build strong and transparent institutions can turn the tide
against corruption. The Fiscal Monitor
shines a light on fiscal institutions and policies, like tax administration or
procurement practices, and show how they can fight corruption.
costs of corruption run deep.
Where there is political will, there is a way
Fighting corruption requires political will to
create strong fiscal institutions that promote integrity and accountability
throughout the public sector.
Based on the research, here are some lessons for
countries to help them build effective institutions that curb vulnerabilities
Invest in high levels of transparency and
independent external scrutiny.
This allows audit agencies and the public at large to provide effective
oversight. For example, Colombia, Costa Rica, and Paraguay are using an online
platform that allows citizens to monitor the physical and financial progress of
investment projects. Norway has developed a high standard of transparency to
manage its natural resources. Our analysis also shows that a free press enhances
the benefits of fiscal transparency. In Brazil, the results of audits impacted
the reelection prospects of officials suspected of misuse of public money, but
the impact was greater in areas with local radio stations.
Reform institutions. The chances for success are greater when
countries design reforms to tackle corruption from all angles. For example,
reforms to tax administration will have a greater payoff if tax laws are
simpler and they reduce officials’ scope for discretion. To help countries, the
IMF has built comprehensive diagnostics on the quality of fiscal institutions,
investment management, revenue administration, and fiscal transparency.
Build a professional civil service. Transparent, merit-based hiring and pay reduce
the opportunities for corruption. The heads of agencies, ministries, and public
enterprises must promote ethical behavior by setting a clear tone at the top.
Keep pace with new challenges as technology and
opportunities for wrongdoing evolve.
Focus on areas of higher risk—such as procurement, revenue administration, and
management of natural resources—as well as effective internal controls. In
Chile and Korea, for example, electronic procurement systems have been powerful
tools to curtail corruption by promoting transparency and improving
More cooperation to fight corruption. Countries can also join efforts to make it harder
for corruption to cross borders. For example, more than 40 countries have
already made it a crime for their companies to pay bribes to gain business
abroad under the OECD
anti-corruption convention. Countries can also aggressively pursue
anti–money laundering activities and reduce transnational opportunities to hide
corrupt money in opaque financial centers.
Curbing corruption is a challenge that requires persevering on many fronts, but one that pays huge dividends. It starts with political will, continuously strengthening institutions to promote integrity and accountability, and global cooperation.
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