October 20, 2011 / 11:15 AM / 8 years ago

Factbox: The Arab Spring's impact on economic reforms

DUBAI (Reuters) - Political unrest across the Arab world has increased pressure on governments to boost economic growth and provide jobs for restive populations. That will require economic reforms, but for now at least, governments have become less willing to consider many reforms because of a public backlash against business elites and the risk that policy changes could hurt living standards in the short term.

Here is the outlook for key economic reforms in selected Arab countries:


Energy policy. Algeria responded to the Arab Spring with public sector wage rises, more generous food subsidies and handouts to the young unemployed; with foreign currency reserves of about $150 billion, it can continue to do this. But it faces a long-term threat: gas production from Algeria’s biggest fields has reached a plateau and will soon start dropping. There is growing acknowledgement in the government that the restrictive hydrocarbons law must be liberalized to spur gas investment, but so far no reform plans have been announced.


— Subsidies. The caretaker government is discussing ways to reform the expensive, wasteful and corruption-prone system of food subsidies, which costs $5.5 billion a year, to target needy people more effectively; it is considering making mills and bakeries buy wheat and flour at market prices. But major reforms would be politically sensitive so they will probably have to wait until after elections that may extend into late 2012.

— Legal reform. Egypt has been reforming business laws for a decade but an inefficient commercial court system, complex rules and a lack of formal legal titles for many land holdings hurt growth. A distracted parliament is unlikely to address these issues before elections.

— Privatization. This is on hold because of court challenges to past state asset sales and business deals involving the previous government.


State spending. A bloated state patronage system already burdens the economy through civil servants’ salaries and military spending; the burden has increased with stepped-up subsidies in response to the Arab Spring. The government’s ousting of the central bank governor last month raised concern that it might help to finance its deficit by raiding funds at the central bank. The cabinet was sacked this week by King Abdullah but it is not yet clear if new prime minister Awn Khasawneh, an international jurist, will change economic policy.


— Nepotism. Large parts the economy, including the two mobile phone operators and shipping, were controlled by members of Muammar Gaddafi’s family. This will now change, potentially creating fairer and more dynamic ownership structures.

— New businesses. The interim government has not given clear indications of its economic policy. While the economy is likely to stay focused on energy, better relations with the rest of the world may spur growth in neglected areas such as tourism.


— Competition. Under-the-table deals have channeled licenses and government contracts to individual businessmen and foreign firms without going through tenders. Last month Morocco’s anti-trust authority pledged to enforce greater transparency and deal even-handedly with businesses owned by the monarchy, the biggest private stakeholder in the economy — but it may have to wait until late 2012 to obtain such powers.

— Fiscal policy. Increased social spending in response to the Arab Spring has widened the budget deficit, so the government has been considering ways to save money including reform of the subsidy system and selling more state-held shares in Moroccan companies. But discussions on how to repair state finances are now on hold because of parliamentary elections due next month. The finance minister heads a party which could end up in opposition to the ruling coalition, so he is sidelined from strategic decisions and the submission of the 2012 budget to parliament has been delayed.


— Electricity prices. Ultra-low power prices set by the state remove an incentive for firms to become more efficient and diversify into less energy-intensive businesses. The government raised electricity tariffs for some sectors last year but there seems little chance of substantial hikes any time soon.

— Private sector involvement. The government originally aimed for major private participation in mega-projects such as building railways and new industrial zones, but these hopes have been scaled back — the railways will be financed through the Public Investment Fund. Privatization plans have lost momentum; the first IPO for a part of Saudi Arabian Airlines has been delayed for a year by regulatory and other issues.

— Capital markets. Saudi Arabia planned to open the biggest Arab stock market to foreign investors and took a step in that direction last year by allowing the launch of exchange-traded funds, but it has not taken bolder steps since then, citing concern about inflows of speculative money.


— Privatization. Tunisia’s revolution has effectively halted plans to privatize and liberalize the economy further; trade unions and left-leaning groups which oppose Privatization have unprecedented power, and this weekend’s elections are likely to give power to a mix of moderate Islamists and left-wing parties. Politicians pushing pro-market policies have been discredited by their ties to the previous regime, and the election campaign has focused on greater protection for the poor and vulnerable, not economic liberalization.

For an analysis of the outlook for economic reforms in the region, click [ID:nL5E7LG06J].

Reporting by Christian Lowe in Algiers, Suleiman Al-Khalidi in Amman, Shaimaa Fayed in Cairo, Asma Alsharif in Jeddah and Souhail Karam in Rabat; Compiled by Andrew Torchia; editing by Ron Askew

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