MATIC, by Jean R. AbiNader (Washington, DC, July 25, 2013) — At a recent roundtable in Washington, DC, hosted by the Middle East and North Africa Consultants Association (MENACA), we discussed the strategic and immediate role that private investment can play in how a country responds to the Arab uprisings. Why is this important?
First of all, one can argue that the majority of the issues of the Arab street can be subsumed under two headings: corruption and jobs.
Secondly, foreign and domestic investment has the power to promote both transparency and employment, since companies prefer, at a minimum, not to engage in deals where corruption taints the process. Even if local laws are lax, home governments are becoming more active in prosecuting corruption in overseas operations.
As the recent G8 meeting brought home, anti-corruption measures are a heightened priority in transnational transactions. As both domestic and foreign direct investment (FDI) increase, employment and economic growth rise.
Another reason is that investors will target sectors with the greatest promise of success/returns. Unlike the former statist economic regimes, sectors will compete for investment dollars, thus promoting stronger, healthier, and more sustainable results.
This growth then generates greater opportunities along the value chain, promoting a proliferation of services and products by small and medium size enterprises (SMEs). External investments also free up funds for governments to invest in programs that build local business capacity and encourage transfer of technology and knowledge.
Another value of investment is that external and domestic investors, including multilateral agencies, are critical to the success of a government’s economic strategies for driving growth and employment. The failure of previous economic regimes indicates that business as usual is insufficient, and that more openness and equality in opportunities, access to financing, labor mobility, and regulatory treatment are essential.
The economic imperatives of the Arab uprisings to secure massive investments for growth have been well documented in the aftermath of the initial turmoil, as well as in more recent analyses. Across North Africa to Egypt and Jordan, the signs are overwhelming that both exports and investments must increase if the basic needs for jobs are to be addressed.
One concrete measure of how the unfinished business of the Arab uprisings is impacting risk assessment by external investors is the impact on FDI from 2010, the year before the Arab uprisings, in comparison with 2012, with most countries still in transition. According to figures from UNCTAD, the situation is not healthy, as most investors are taking a wait and see attitude.
|Country||Change from 2010 – 2012||Change from 2011 – 2012|
|Libya||No reliable data available||No reliable data available|
Earlier this year, Deutsche Bank and others enumerated challenges to economic growth in the Maghreb that included high unemployment, inefficient subsidy regimes, and low trade diversification (lack of new markets).
In addition to addressing these challenges, one should add enacting robust rule of law especially regarding commercial and investment policies, closing gaps between education and employment, capacity building for local governance, and social justice and economic initiatives that decrease marginalization and increase access to opportunities.
It should not be surprising that Morocco continues to be attractive to foreign investors. While the government is still pushing needed economic reforms through Parliament, Morocco’s investment strategy is built on a series of well-defined projects supported by the government in diverse sectors, from value-added agriculture and tourism to aircraft and automobile parts manufacturing and transportation and distribution logistics.
Unlike in other Maghreb countries, tourism has held its ground looking at year to year comparisons. It has increased 3% in the first six months of 2013 compared to the same period in 2012.
Although Tunisia’s GDP rose 3.6% in 2012, the uncertainty over the constitutional process, proposed banking reforms, and eventual negotiations to form a new government continue to bedevil its attraction to foreign and domestic investors. Given its size and history of international business, it is anticipated that Tunisia can move quickly to attract foreign investment as the new governing structures come into place.
While the future of the Bouteflika presidency dominates headlines in Algeria, economic concerns are much in evidence. The economy is overwhelmingly dependent on energy exports, it lacks diversification, investment laws are often perceived as opaque, and the private sector is still a nascent player in regional business. The bright light is a recent MoU with the EU on energy cooperation, which “establishes a framework for cooperation in several areas, namely oil and gas, renewable energy and energy efficiency, reform of the legal and regulatory framework, gradual integration of the energy markets, infrastructure development, technology transfer and local development.”
Having reviewed the investment profiles of the Maghreb countries, the group discussion focused on proactive steps that could be taken by leaders in the Maghreb to attract investment. It is not surprising that there was discussion about a key missing ingredient to drive economic growth – domestic investment capital. If local sources of wealth are reluctant to invest in their own countries, it is more difficult to attract external capital, since risk mitigation dominates investment calculations.
A very strong case was made for transparent rule of law and equality in applying those regulations across all segments of society. When international and domestic investors believe that they can do business in an environment that is welcoming, open, and shares risks and rewards, then the opportunities for success result from market conditions and not manipulation. It will be quite interesting to have this conversation a year from now.