The Middle East and North Africa: a tale of two futures

Abstract

The future of the Middle East and North Africa will be determined by progress on economic reform, political participation and the emergence of a strong identity rooted in the region's history but open to the rest of the world. This article presents two very different tales of the regional neighborhood in the year 2010 as a heuristic device to illustrate the possible future outcomes for the region of policy choices made today. The end of a millennium often inspires speculation the future, especially in a region with a millennial history like the Middle East and North Africa.' But as Charles William Maynes wrote in a recent issue of The Middle East Journal, about much of the future, all we can know is that important but unpredictable events will happen.2 This article does not attempt to predict the economic future of the Middle East and North Africa, but rather describes what is at stake. Two visions of the year 2010 are offered-tracing two very different paths that could unfold from today's realities and challenges. EXTERNAL AND INTERNAL DYNAMICS A central theme of the economic history of the Middle East and North Africa has been the region's relationship to the rest of the world. Economic historians, such as Charles Issawi, have focused their work on the challenge of expansionary and modernizing Europe, and the reaction of the MENA region to that challenge.3 Later, the oil boom era gave rise to an extensive literature on the way the newly found wealth of the region could be directed to achieve broader development objectives and greater regional integration, and to restore the region's power and prestige vis-a-vis the West.4 Finally, with the collapse of oil prices in the mid-1980s, economic analysis shifted to the possible gains from peace between Arabs and Israelis or from integration with Europe. A number of authors argued that reducing political risks in the region was the key to an investment boom, greater intra-regional trade, and improved employment opportunities for the people of the region.5 In the past three decades oil has been the key determinant of the region's economic performance, but it is unlikely to remain as determining a factor as it was in the past. The boom period between 1973 and the early 1980s was one in which oil prices more than quadrupled in real terms; while the bust period that extended from the mid-1980s to 1995 saw those prices decline by more than 60 percent in real terms. At the peak of the oil price boom in 1978-81, the windfall rent from oil reached almost 50 percent of Gross Domestic Product (GDP) in the oil exporting countries, with 35 to 40 percent of GDP spillover effects for the region as a whole.6 Petroleum can no longer provide sufficient resources for sustained regional development. The truly remarkable improvements in the socio-economic indicators of many of the oil rich countries, mainly because of the substantial amounts of the oil wealth invested in education, health, and infrastructure, will be endangered if increasing incomes cannot be generated in manufacturing and services. Incomes in the region will have to be based on knowledge, which worldwide is replacing natural resources and even capital as the primary source of wealth. The degree to which knowledge is applied and productivity gains generated will depend on the quality of the economic policies of MENA countries, as well as on regional dynamics. Economic research strongly suggests that there are indeed neighborhoods where countries are impacted by the spillover effects from economies on each side of their borders. This explains why countries often exhibit good or bad economic performance as a group.7 Part of this phenomenon can be understood in terms of policy emulation and convergence within regions, and part as it relates to perceptions of investors and the relative integration of factor and commodity markets. In terms of cultural and language links, labor mobility and investors' perceptions, the MENA region does constitute a neighborhood. …