Sufyan Alissa, Associate, Carnegie Middle East Center

Mustapha Nabli, Chief Economist and Sector Director for the Middle East and North Africa, the World Bank

Marina Ottaway, Director, Middle East Program, Carnegie Endowment for International Peace

Sufyan Alissa, associate at the Carnegie Middle East Center, presented his paper “The Challenge of Economic Reform in the Arab World: Toward More Productive Economies.” The paper highlights the structural barriers to viable economic reform in the Arab World and marks the start of Carnegie’s two-year project to explore the challenges facing economic in seven  countries. The forthcoming series of papers will assess institutional capacities in Arab states while developing a clearer picture of what economic reform in the Arab World actually means. Further, the series will explore the links between political and economic reform, while asking whether economic reform can only succeed if accompanied by changes in Arab political systems.

Alissa explained that the two basic structures of Arab rentier economies –one that is dependent on petroleum revenues and one that is dependent on foreign aid, remittances from workers living abroad and loans– are fundamentally flawed in their reliance on external rent, allowing state-dominated economies to survive despite gross inefficiency and inequality. The lack of a consensus on what constitutes economic reform combined with insufficient institutional capacity has created economies plagued by unemployment, inflated deficits, and low productivity. Exacerbating these problems further are an excess of destructive resistance to economic reform from elites protecting their interests and a paucity of constructive resistance from public interest groups that could provide valuable economic and political accountability. Ultimately, Arab politics will play a crucial role in the eventual success or failure of efforts at economic reform.

Mustapha Nabli, chief economist and sector director for the Middle East and North Africa at the World Bank, emphasized that any effective reform program must take into account the institutional capacity of a given state as well as the restraints presented by the local political economy. Economic reformers should return to focusing on strengthening institutions while recognizing that political and economic institutions are inextricably linked. This means examining political and economic equilibria simultaneously to ensure that progress in one sector does not create setbacks in another.
During the subsequent question-answer period, participants raised issues concerning the role of youth demographics, the impact of population growth on the region, the efficacy of privatization in aiding economic reform efforts, and the need to take cultural considerations into account when pursuing reform in the Arab World.