by Lin Noueihed
Of course, some benefits from foreign investment and economic liberalization did cascade down to the broader population. Retail franchises, car dealerships and mobile phone companies all create jobs and spin-off businesses, while privatization generates proceeds that contribute towards government spending. But their main beneficiary was nonetheless an increasingly ostentatious clique that was able to accumulate ever-greater wealth and power, to the growing frustration of the masses.
At the other end of the corruption spectrum, but just as corrosive to the building of trust in the institutions of state, was petty graft. Swedish social scientist and Nobel prize-winning economist Gunnar Myrdal, whose description of corruption in south-east Asia in the 1960s could easily apply to many Arab countries in the early twenty-first century, describes this in terms of ‘soft states’. Such countries are ‘dominated by powerful interests that exploit the power of the state or government to serve their own interests rather than the interests of their citizens’. It is a system, Myrdal wrote, that ‘easily leads people to think that anybody in a position of power is likely to exploit this in the interest of himself, his family, or other social groups to which he feels loyal. If corruption becomes taken for granted, resentment amounts essentially to envy of those who have opportunities for private gain by dishonest dealings.‘12
Galal Amin, professor of economics at the American University in Cairo (AUC), argues that ‘the soft state came to Egypt about thirty-five years ago’ and had appeared ‘both totalitarian and soft’ since the 1980s, restricting individual freedoms on the one hand but constructing bureaucratic frameworks that by their very nature encourage law-breaking on the other.13
Under this sort of system, rules exist in theory but are not imposed in practice; they appear to exist with the widespread knowledge that they will be bent or ignored. The payment of invoices can be accelerated by greasing the palms of an underpaid clerk in the accounts office. Tax bills can be reduced by paying a willing official to ‘handle your account’ and rubber-stamp a falsified return. A traffic policeman threatening to impose a speeding fine can be dissuaded by the surreptitious palming of a note through the car window. Construction permits can be purchased from those with the right wasta, a word which has no direct equivalent in English but suggests the use of one's connections to curry favour or get out of a sticky situation, something akin to ‘pulling strings’.
Such transactions permeate down to the most mundane aspects of life. In Damascus, landlords who rented out property were obliged to register the details of their tenants with the local authorities and theoretically also had to pay tax on any income they made. To give one real-life example, a two-bedroom apartment in the upmarket Abu Romaneh district of the Syrian capital was worth an annual rent of about $20,000 in early 2011. But the annual rent that the landlord lists in the contract might be little more than $1,000, a ludicrously low amount which in turn reduces the tax bill. The official registering the contract realizes that the listed value is highly unrealistic, but either does not question it, given that he or she stands to make no personal gain or loss if the real market value is listed, or uses the situation as leverage to extract a small bribe in exchange for turning a blind eye.
This is a classic example of an opaque and inefficient system in which more or less everyone is forced to commit a crime because the laws are ‘there to be broken’. If you aren't breaking them, so the reasoning goes, then someone else is, even their supposed enforcers. But the very process of breaking them gives birth to a niggling fear that somebody, somewhere, in the security services or the bureaucracy, has a record of your crime. You are therefore part of the system and have no interest in exposing other abusers.
It all creates a vicious circle in which the government fails to collect sufficient taxes to make improvements that could remedy the situation, such as raising public-sector wages to a level where taking bribes would no longer be necessary to supplement incomes. The size of the informal cash economy keeps growing, and those making the rules have no incentive to change them.
One important implication is that loyalty to the organized state is necessarily weak. People learn not to rely on talent or meritocracy to further their careers or business interests, but turn instead to connections within their own communities, whether defined by religion, family or geography, for the provision of jobs, favours and opportunities.
This lack of loyalty to the state, we will show, is at the heart of the dangers that Arab countries face in making their transition from dictatorship to more participatory and transparent political systems. The more entrenched the networks of patronage and corruption, the harder the country will have to work to avoid sinking into civil war or falling victim to a new dictatorship.
Both petty graft and elite corruption helped plant the seeds of discontent in the Arab world. In Tunisia, Syria and Egypt corruption created figures of hate against which popular anger could be targeted. Ben Ali's wife, Leila Trabelsi, was reviled by Tunisians for what they saw as her desire not only to keep major international investments in the family, but to demand a stake in any profitable private enterprise. The Trabelsi family's predatory behaviour had reached such an extent on the eve of revolution that Tunisians cited it as a reason why they were not interested in growing their own companies. Tellingly, an early concession promised by Bashar al-Assad in an effort to extinguish protests in June 2011 was to announce that Rami Makhlouf, the president's cousin and one of the country's wealthiest men, would ‘retire’ from business.
By that time, it was too late. Assad and other Arab leaders were seeing a popular rejection of the uneasy marriage of inefficient Soviet-style bureaucracy with crony capitalism that had bred corruption, encouraged nepotism, and left the growing mass of young people unable to access anaemic job markets and faced with a punishing rise in the cost of living.
Inflation, Uninterrupted
Despite the grand plans and the computer-generated images of pristine new skyscrapers, many Gulf-funded real-estate projects in oil-poor Arab countries never broke ground. Some were scuppered by incompetent management and disputes with local partners, others by stultifying levels of corruption or labyrinthine local bureaucracy. Many Gulf investors attempted to copy and paste a Dubai-style business model that involved making bumper profits very quickly by selling luxury properties off-plan to speculators who would resell them within days at inflated prices. But a more complicated web of regulations and taxation in poorer Arab countries made this model problematic to export, as did the fact that a much higher proportion of potential buyers were actually people who would live in the apartments or villas when they were finished. Unlike the speculators, they preferred to wait and see the finished product before opening their wallets.
And the finished product in many of these swanky new developments was often far beyond the reach of the average person. Marketing campaigns in Tunis, Casablanca or Cairo showed futuristic towers, luxurious apartments with gyms and swimming pools, or images of smiling families buying Western designer brands in air-conditioned shopping malls.
True, there was an elite who could afford this lifestyle. But for the bulk of the population, battling with high unemployment, low incomes and rising prices, these images were not just an inaccessible dream but painful evidence of a growing rich-poor divide. They bolstered a sense that foreign investment, often from the Gulf, was only benefiting the upper crust of society, whether through corrupt deal-making and the sale of state assets, or by building new districts for the rich. Meanwhile, the poor languished in crumbling accommodation squeezed into overcrowded districts that lacked basic services or decent roads.
Foreign investment in real estate was also one driving force behind a property price spike that spread across the region in the years leading up to the Arab Spring. Others included a common preference for investing in bricks and mortar rather than riskier stocks and bonds, natural population growth, rapid urbanization and easier access to credit. Social trends were also changing, with more and more youn
g couples wanting to move immediately into their own home rather than taking the traditional route of living with the groom's parents.
More importantly, overseas remittances had been pouring into property. The boom in oil-rich countries had created hundreds of thousands of jobs for Egyptians, Syrians, Moroccans, Lebanese or Jordanians, work that Emiratis, Saudis or Qataris were either unwilling, unqualified or insufficiently numerous to do. Saudi Arabia is the second-biggest remittance-sending country in the world after the United States.14 Remittances wired home by expatriates in the Gulf, including some 10 million Arab nationals, totalled $40 billion in 2008, up almost a third on the previous year. Remittances from Gulf countries to Egypt alone stood at more than $4 billion in 2008–9,15 while Jordanians working overseas sent back some $3.2 billion in 2008,16 45 per cent more than in 2005 and equivalent to about a fifth of the country's GDP. Much of this was reinvested in property because the aim of most single men who went off to work in the Gulf was to save enough money to buy a house in their own countries, giving a major boost to their desirability in an increasingly competitive marriage market.
The end result was a region-wide property boom in the second half of the 2000s, pushing house prices and rents to levels that were out of proportion with incomes. A 20-something university graduate working in a respectable private company in Damascus might take home a monthly salary of about $750, but to rent a one-bedroom apartment in a mid-range district would easily cost more than $500 a month. A 2008 survey found that property prices in many parts of Tripoli had risen by an average of 70 to 80 per cent in the previous year alone. In Tunisia, only 41 per cent of respondents to a 2010 poll said they were satisfied with the availability of affordable housing, compared to 74 per cent in 2009.17
Wages rose, and access to credit did get easier, but not enough to close another gaping divide between expectation and reality. Life was made more difficult because landlords would frequently ask for large upfront payments on rent, often for six months or even a year, to give them security. And if you worked in the informal sector, as many people did, or in any job that was not full-time and could not be proven with a formal letter from your employer, then no bank would even think of offering you a loan. Researchers at Tunisia's statistics authority went on strike during the summer of 2011 to protest about years, sometimes decades, of working on a continuous succession of short-term contracts that made them ineligible for either mortgages or pensions.18
The cost of housing was just one element among widespread price rises that stoked popular discontent. In the region's largest non-oil economy, Egypt, the cost of food and drink rose much faster than the overall consumer price index between 2005 and 2009.19 It was the same story in Syria, where food and fuel prices rose more rapidly than any other items over the same period, partly because the government had cut diesel and heating oil subsidies.20 In Morocco, grain prices jumped between 2006 and 2008 while the government's subsidy bill in the first four months of 2011 was more than three-quarters higher than in 2010.21 In Tunisia, where many suspected that the government massaged its economic figures, food, drinks and transport costs rose more quickly than those of any other product in the years before the revolution.22 Even bribes got more expensive. ‘A traffic stop used to cost you 20 dinars and now it's up to 40 or 50!’ complained a source in a US embassy cable from Tunis released by WikiLeaks.23
Inflation was cushioned to some extent by state subsidies, and Arab regimes were all too aware of the potentially explosive effect of removing them. When late Egyptian President Anwar Sadat reduced bread subsidies as part of Western-inspired liberalization policies in 1977, riots in Cairo left some 80 people dead. In 1984, when ageing Tunisian leader Habib Bourguiba announced that the price of bread would double, dozens died in a wave of clashes across the country. In both cases the subsidies were soon reinstated. In 2008, the Moroccan government happily accepted a Saudi grant of $500m to help pay subsidy bills after the cost of its crude oil imports rose by 69 per cent in the first quarter of the year.
But price rises were also being fuelled by a burgeoning consumer culture and easier access to debt. More and more households took out loans or overdrafts to fund the purchases of TVs, cars, houses or even medical treatment. In Tunisia, for example, the value of bank loans to individuals rose almost fourfold in the eight years between 2002 and 2008, and the value to professionals almost doubled.24 The value of short-term loans only increased by 5.5 per cent between 2001 and 2005, but then soared by 67 per cent between 2005 and 2010. Bank claims on private companies and households in Morocco rose by an average of 14 per cent per year between 2005 and 2010.25
Other issues contributed. The Tunisian dinar depreciated by 12 per cent against the euro between 2006 to 2011, making imports from the Eurozone – the country's largest trading partner – more expensive. The global food price spike that afflicted North Africa more than many other regions was exacerbated by a heavy reliance on imports and rising consumption. Egypt, for example, is the world's largest per capita consumer of bread and its largest importer of wheat.26 Per capita wheat consumption in North Africa rose by about a fifth in the first decade of the 2000s, and in 2010 the region imported a quantity of wheat surpassed only in 2008.27 In January 2011, the UN's food price index set a new record high, surpassing the previous peak of 2008 when protests had erupted across North Africa and beyond.28
High energy prices also took a particularly high toll on many Arab economies because of their reliance on oil and gas for power generation. Of Egypt's total primary energy consumption in 2008, 94 per cent came from crude oil and natural gas, whereas the equivalent in the United States was 69 per cent and in France 53 per cent.29 The remainder there was provided by burning coal or came from renewable and nuclear sources, but Arab economies had fallen sharply behind the rest of the world in diversifying their power sources. This meant that rising local energy consumption ate up greater proportions of domestic oil and gas production, leaving less available for export and bringing fewer dollars into state coffers. This lack of diversification presents long-term problems for Arab economies, even for the major oil producers like Saudi Arabia.
Rising prices did not exclusively affect those countries that saw upheaval in 2011. Prices had skyrocketed in supercharged economies growing from a small base, like the UAE or Qatar, and also in Saudi Arabia, where high inflation was a relatively new phenomenon. The kingdom's cost of living, which had actually fallen below 1999 levels in the first five years of the 2000s, rose rapidly after 2005, and inflation touched almost 10 per cent in 2008.30 But as discussed at the start of this chapter, most oil-rich countries had the financial resources to ensure that living standards were not dangerously eroded, even if the social contract only papered over the same structural cracks as in other Arab countries – a youth bulge, a lack of ‘real’ jobs as opposed to manufactured public-sector positions, and a reliance on food imports.
The argument that consumers were protected from inflation by government subsidies is true to some extent, but fails to take into account the abuse of the system by wholesalers. The widening gap between subsidized local prices and rising global prices only encouraged unscrupulous merchants to sell basic foodstuffs on the black market at inflated prices or to smuggle fuel across borders to countries where it would fetch more money. More importantly, every extra dollar spent by the state on keeping petrol or food prices artificially low was a dollar not spent on improving education or healthcare standards. State budgets, at least in oil-poor countries like Syria or Tunisia, were not bottomless.
Rising prices might not have fomented such frustration had incomes and employment matched their growth. But in deprived areas of many Arab countries, the worst-off were being pushed below the poverty line, with serious implications for stability. Anger was not only inflamed by rising prices, but by the growing sense of injustice at the ruling elite who were lining their pockets with the proceeds of economic liberalization while many wallowed in unemployment or underemployment.
Jobless Growth
The word hittiste has its origins in 1980s Algeria. It refers to a young, male urban dweller who spends much of his time leaning against a wall, or hit in Arabic, because he has no work and nothing else to do. It is a phenomenon visible not only in Algeria but in most towns and cities across the Arab world, even though the hit might now have been replaced by an internet café or a shopping mall, depending on the country.
Youth unemployment was without doubt one of the main roots of discontent in many parts of the Arab world. The overall jobless rate varies from around 10 per cent to 20 per cent across the region, depending on whose figures you believe, but for those between 15 and 30 years of age, it is far higher – just as it is in the Western world. In virtually every country in the region, 15- to 30-year-olds made up more than half of the unemployed population and represented a dangerous hotbed of resentment. By 2010, only 29 per cent of Egyptians thought their government maximized the potential of youth, compared to 41 per cent a year earlier.31
Job creation did take place, but generally favoured older people or even expatriates. In Jordan, for example, foreign workers took some 63 per cent of the 55,000 jobs created every year between 2001 and 2007.32 An increasingly bloated public sector still dominated the labour markets and was apparently preferred by most jobseekers for its better average pay, laxer work ethic and greater security than ‘real’ jobs in the profit-driven private sector. There were exceptions. ‘For every twenty people in government, eighteen sit around doing nothing,’ said one Kuwaiti entrepreneur whose explanation of why she didn't want a public sector job summed up the issues of underemployment and invisible unemployment that masked the true scale of joblessness.33 Anyone who has wandered through the labyrinthine corridors of public-sector companies and ministries anywhere in the Arab world would probably agree with her. One efficient, well-paid person could do the same job as three inefficient, low-paid people, but governments did not want another two unemployed people on the streets.
