Two years after the Arab masses took to the streets, mayhem’s end is nowhere in sight.
In Cairo, the Arab world’s heartbeat, Egypt’s first freely elected government relegated the economy to the back burner to pursue a politics of divisiveness.
President Mohammed Morsi’s attempt in November to impose himself on the judiciary resulted in renewed street violence, and the subsequent referendum over a new constitution was shunned by two-thirds of the electorate. Egyptians’ effort to vote with their feet indicated that the government had spent much of its hard-earned political capital sooner than expected — and for the wrong cause.
As argued here last year, the Islamists are in a social position to address Egypt’s pressing economic needs because they can deliver the poor masses, who will bear the brunt of the draconian measures their economy demands.
Alas, in his first six months in office Morsi made no meaningful economic move, focusing instead on expanding his authority.
The markets, meanwhile, given reason to suspect that the economy was being neglected, responded with alarm. The pound, which on the eve of Morsi’s clash with the judiciary traded at 6.1 to the dollar, has since dropped to 6.39, as opposed to 5.8 in the last days of the Mubarak era. Meanwhile, S&P downgraded the nation’s long-term credit rating to B-, the level of Greece.
The government’s lack of economic drive is evident in a more than 50% decline in foreign-currency reserves since the revolution, and in the central bank’s announcement last month that the reserves have dwindled to $15 billion, the minimum necessary to purchase the country’s essential imports. Talks with the International Monetary Fund about a long-awaited $4.8 billion loan have been suspended after the government backed off a plan to raise taxes.
Ultimately, Morsi’s economic vision and delivery will be judged on two fronts: the military industries and the subsidies regime.
The military’s ownership of an elaborate network of factories is a famous anachronism that burdens the economy and distracts the military. But taking over and privatizing the military industries would mean clashing with the generals, a decision Morsi cannot make hastily. That’s because he needs the army in case unrest resumes, for instance in the wake of next month’s parliamentary elections.
That is also why Morsi is not likely to abolish the country’s unaffordable subsidy regime, which inserts the government into the price of every bread loaf, sugar pack and cooking-oil bottle. While cutting subsidies is what the economy demands, leaving the prices of basic goods to the markets’ devices would likely send into the streets the very masses that are the president’s power base.
The good news since the presidential election has been that the Muslim Brotherhood has left the tourism industry alone. That’s despite the clerics’ unconcealed displeasure with Red Sea beaches where, halfway between Cairo and Mecca, foreign women bathe while dressed as if they were in St. Tropez.
Similarly, revenues from the Suez Canal also continue streaming, though the global economic crisis has reduced maritime traffic worldwide.
In sum, half a year after Morsi was elected, Egypt’s salvation remains elusive, as he has so far chosen to focus on politics and procrastinate on economics.
If Syria breaks upFour hundred miles northeast of Cairo, Bashar Assad would give anything to trade places with Mohammed Morsi. Receiving daily reports about more battles, casualties and lost turf, he doubtfully has had much time to think about the food shortages, work stoppages and disrupted air traffic throughout his country, or about the Syrian pound’s plunge to 70 per dollar from 47 since the civil war started in March 2011.
As 2013 begins, however, (it is clear that) Syria’s inflationary currency and the growing lines there for food and oil are widely seen as indications that by next Christmas, Assad and his regime will have lost Damascus to the rebels.
Then again, intelligence services increasingly suspect the regime will not be fully defeated. Rather, Syria will break down into three pieces, thus:
The fallen regime would retreat to the Mediterranean coastline and the Nusayriyah Mountains to its east, where Assad’s Alawite minority has been anchored for centuries; the Kurds in the northeast already have effectively seceded and might link with their brethren in Iraq; and the remaining 75% of the Syrian population, including the Christians and the Druze, would fall under the tutelage of the Sunnis.
Such an aftermath would be economically bad, for two reasons: the defeated Alawites would be hostile to the new regime; and the coast’s function as Syria’s commercial gateway will be hindered by Alawite-Sunni tensions.
The Alawites’ quest to link their brief coastal strip with their Shiite allies in southern Lebanon will further complicate prospects for economic restoration in Syria this year, as an economically vibrant Damascus needs a peaceful and easily accessible Beirut.
Worse, the presence on the Syrian coast of the large Russian naval base in Tartus will grant the Alawites sufficient backing with which to be a thorn in a Sunni regime’s side. The fact that the Sunnis will be backed by Turkey, and possibly also by the U.S., will only increase Moscow’s motivation to keep the Alawites politically apart.
In the best-case scenario for the Mideast economy, Syria’s civil war ends decisively and a new regime that proves business-minded and efficient gets down to the business of building the country from scratch.
The likelihood of this materializing this year is low, but if it is to happen its great beneficiaries will be Turkey and Saudi Arabia, both of which are ready, and eager, to finance Syria’s reconstruction. Another great winner in such a case would be Lebanon, whose financial sector will also get a share of the activity, the more it grows.
However, if change is to come to the Middle East economy in 2013, chances are it will come from Iran.
Iran as wild cardIn June, the eight-year Ahmedinejad era will come to its end, as he is constitutionally barred from running for a third term.
Ahmedinejad does not make the last call in Iran; that prerogative remains with Supreme Leader Ayatollah Khamenei. But the militant president has been identified more than others with the nation’s defiant foreign policy, which has provoked the sanctions that are now crippling its economy. Having also openly quarreled with Khamenei, the departing president has become a nuisance to much of Iran’s political system.
June is in fact the deadline the entire international system is awaiting before it considers its next move in Iran.
Iran will change next spring, and change will arrive in one of two ways: either the regime installs a more pragmatic president, or the people take to the streets the way they did in June 2009, only this time with even more wrath, since they are now much poorer and they have seen people power topple regimes throughout the Middle East.
Should the Iranian people do to their leaders what the Egyptians, Tunisians, Libyans and Yemenis have done to theirs, and what the Syrians are in the process of doing to theirs, Tehran’s revolution will be different. After 33 years of Islamist rule, a new government there will likely turn its back on its predecessors’ austere economics and unleash Chinese-style reforms.
And once Tehran mends fences with the world and opens its economy, investments will pour into Iran while Iranian oil and gas will be mined in unprecedented quantities, tourism to the relatively secluded country will boom, its imports will multiply and new assembly lines will sprout around its cities.
All this will ignite the economy not only in Iran but throughout the Middle East.
By Amotz Asa-El of marketwatch.com