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The Challenge of Economic Reform in the Arab World: Toward More Productive Economies

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A new study by the Carnegie Endowment finds that previous attempts at economic reform have not alleviated the economic problems of Arab countries, failing to dismantle state-dominated economies with high restrictions on private investments. Arab countries represent only 4 percent of world trade and have the highest unemployment rate in the world at 12.2 percent. The per capita GDP in these nations has fallen in recent decades and public debt has hit a critical level in several countries.

In this Carnegie Paper from Carnegie's Middle East Center, The Challenge of Economic Reform in the Arab World, Sufyan Alissa examines the major factors responsible for hindering meaningful economic reform in the Arab world. Governments and established elites have little incentive to create reforms that could threaten their economic and political interests. Furthermore, governments and institutions in the Arab world have limited capacity to plan, implement and manage reform programs, and have little agreement on what true reform would entail

Alissa argues that, in economic terms, there are two types of states in the Middle East and North Africa--those that are highly dependent on oil, and those that depend on foreign aid, international loans, and remittances from expatriate workers. Both have used these highly volatile revenue sources to temporarily alleviate economic pressures, preserve dominant elite privileges, and buy loyalty to the state--all at the cost of sustainable, long-term reform.

In order to achieve genuine reform, governments must move beyond economies dominated by the public sector and support economic models driven by the private sector as the main source of growth and income.

"A consensus is forming among international financial institutions, economics and aid practitioners that lack of progress in improving governance lies at the very heart of most of the challenges currently impeding economic transformation in the Arab world," says Alissa.