The ongoing transition in the Arab countries, particularly those in North Africa, requires both a re-assessment of the role of the state in economic development and a fundamental rethinking of the ‘Social Contract’ prevailing in the region.
Whether the countries opt for incremental policy changes or more comprehensive reform strategies, the policy interventions need to be designed within a broader framework of a country’s development plans and a long-term vision of a socioeconomic inclusive growth strategy.
Initiating coherent and effective policy reforms at a nascent democratisation stage, with an eruption of voice and people’s heightened expectations, at the same time as facing a harsher international economic environment, is very challenging.
But, with the colossal challenges comes the opportunity to undertake effective reforms to enhance economic recovery and promote sustainable broad-based development. To tackle the twin challenge of addressing the short-term pressures and widespread public discontent while also restructuring towards more productive economies, the Arab governments need to design a concerted and coordinated action plan based on a comprehensive assessment of various policy options and to raise public awareness about the trade-offs.
An important question during this transition process is Where are we and where should we go? Relating to this question, we can ask whether a new political and economic paradigm is needed and of what kind? How do the dynamic interaction between
politics and economics work, and do political reforms need to be fixed before addressing economic policies, or does a successful political transition depend on a successful economic rebound? Whatever the answer, getting on a path of democratic transition and sound inclusive growth requires them to address:
job creation particularly for the young workforce;
access to economic opportunity for disadvantaged individuals to realise their potential;
social protection for the vulnerable; and,
strengthened governance systems and institutions.
The challenges for the countries emerging from the Arab Spring are not quite so different from those faced by other countries that experienced similar transition processes, where the economic and political situations were bound to get worse before improving. However, the complex regional and international environment in which these events occurred, compounded by the prolonged transition period, risks further deterioration in the already fragile socio-economic situation, a collapse of trust in governments and a rudderless economy.
Arab Spring countries have already seen in 2011 an important recession of economic growth, collapse of private and foreign investment, an increase of unemployment and inflation, a deterioration of fiscal balances etc… While the economic indicators started to stabilise in 2012, the situation remains quite fragile and the risks of succumbing to an economic depression, political crisis and social instability are very high.
To address these risks, and limit the cost and duration of the transition, there is an urgent need to develop a coordinated strategy for economic and social development with shortand long-term goals to respond to the short-term needs and political pressures while laying the foundation for deeper reforms in the medium- to long-term.
Engaging in concerted reforms with civil society organisations, labour unions and other interest groups and stakeholders will help to clarify the vision; build confidence and trust between government, private sector and citizens; these steps will help create a sound transition to democracy.
There are no ready-made reform packages and policy changes need to be tailored to each country’s circumstances and challenges.
However, some lessons can be learned from past failures and successful international experiences to identify some policy options to manage the short-term challenges and to accelerate structural changes and inclusive development in the medium- and long-run. The major short-term challenges consist of restoring security and reducing social tensions, improving macroeconomic stability, containing the fiscal deficit and restraining inflation to restore business and investor confidence. The governments need also to undertake short-term employment initiatives that offer cash for work, reward specific skills, and offer training and capacity building opportunities.
Priority areas for structural reforms include enhancing a competitive and vibrant private sector that can generate sustainable jobs for the four million young people entering the labour force each year in the region, and no longer depend on regulatory rents and privileged connections. The countries will need an industrialisation strategy to complement private sector development initiative and help private investment to flow in high value-added activities. A strategic approach to industrialisation can be complemented by promoting industrial agglomerations helping to boost productivity, fostering the spillover of a firm’s capabilities, and helping export markets.
The industrial strategy will also need to be coordinated with policies that improve governance structures, to strengthen administrative capacity and institutional quality, and develop the infrastructure to ensure regional balance and sustainability.
The industrial policies and regional development strategies need to be designed according to the specific profiles and potentials of the different geographic regions.
As mentioned above there is no single appropriate strategy for structural reforms and promotinginclusive growth and different policies can be combined in different ways according to eachcountry’s specific context and objectives. A number of public policies can be suggested to helpsocial cohesion and inclusion. Among these we can suggest: reducing labour regulations and barriers to hiring staff; encouraging entrepreneurship initiatives particularly for women and youth;reforming the education system and aligning it to economic development goals by bringing together economic and education policy makers with business and education leaders; and promoting productive social protection and workfare programmes to empower the most vulnerable groups