NUMBER 5 | May 2011 62225 TOWARDS A NEW PARTNERSHIP FOR INCLUSIVE GROWTH IN THE MIDDLE EAST AND NORTH AFRICA The World Bank, Middle East and North Africa real hold or to transform sclerotic intuitions. Region1 Often they were perceived to increase inequality, and benefit the politically-connected elite. Introduction: Citizens are challenging authorities across the Middle East and North Africa The Way Forward: The public engagement (MENA), in countries with diverse socio- emerging today in several MENA countries economic and institutional settings. From opens an opportunity for the people of the region wealthy Bahrain to impoverished Yemen, from to take their destiny in their own hands, Tunisia with its sophisticated state institutions, to formulate the strategies to achieve a path Egypt with its five thousand years of culture and forward, and carry out the kind of reforms civilization, the unifying refrain has been needed to overhaul the development paradigm “Dignity, Respect and Freedom” and an end to and unlock the full creative potential of their the Arab exceptionalism which has denied rights countries. Greater government accountability and enjoyed elsewhere. The Arab Spring in the spirit public participation will be essential elements for of a popular awakening has arrived corrective measures to be applied when economic and social policies do not achieve the desired The Political Economy of the Arab Spring : The results. As government legitimacy deepens, there events are fundamentally political. However, the is also likely to be more effective regional political nature of the change should not cooperation in the Arab world, based on underestimate the role played by economic solidarity among peoples, and a desire for greater factors. Like Central and Eastern Europe in the inclusiveness, both regionally and globally. 1980s, many regimes are under stress in part because they are economically unsustainable. Challenges to the Arab Spring: The Arab Spring Countries have been unable to sustain shared creates significant opportunities for the MENA economic growth at levels necessary to generate Region and for the world, but there are also the quantity and quality of jobs expected by a challenges and risks. The tenure and popular rapidly expanding labor force, notably young backing of transition governments will vary and men and women. decision-making in crisis situations may focus excessively on short-run palliative measures. Economic reforms had started in several Food and energy price shocks, and the global countries during the last decade. But in the economic environment, could challenge the context of declining state legitimacy, low levels of economic and political reform process. In political participation, nepotism perceptions of countries undergoing a political transition – such corruption and predation, and little as Tunisia and Egypt – there may be few accountability, reforms were too partial to take organized groups and parties running on a clear economic development platform. In some countries, there are risks that governments will 1This Arab World Brief is derived from a collaborative effort of the World Bank Group and other Multi-Lateral be driven by populist demands that compromise Development Banks. The African Development Bank, the the country‘s future, or that necessary reforms European Bank for Reconstruction and Development, the stall due to a popular backlash. Some European Investment Bank and the Islamic Development Bank governments may choose to crackdown on were consulted in reviews. The longer paper also entitled “Toward a new Parntership for Inclusive Growth can be protests, further enhancing perceptions of accessed on the front page of the World Bank portal at exclusion and lack of voice. Competition and www.worldbank.org or by calling MNA K&L at 1 (202) 473 conflict between religious groups, and/or 8177. between ethnic majorities and minorities, may 1 increase, exacerbating perceptions of exclusion. term financing needs, and for the medium-to- Political risk perceptions may rise, deterring long term investments which will generate the domestic and foreign private investment needed bulk of much-needed jobs, particularly in the to create employment, and government budgets private sector. Innovative financing and risk- may shift away from investment towards mitigating mechanisms to support private consumption to cool popular discontent. The investment will be critical. This will be a high spreads on commercial financing are already priority for MDBs and bilateral agencies. In the rising with rating agencies downgrading same vein the opening of external markets – for countries. Timely external support – including goods, services and labor – will be fundamental aid from the world‘s largest economies – for to the success or failure of the transition. These countries to define their development goals and issues could help determine whether the Arab address their peoples‘ aspirations may fall short Spring declines into an Arab Winter or matures unless potential bilateral donors overcome fiscal into an Arab Renaissance. and domestic political constraints. This Brief proposes a framework for support to International Support to the Arab Spring: MENA based on the following four building MENA countries will be well served by blocks, which are closely interconnected. Support international support that is driven by a shared to the region could address the following four vision around common development goals development priorities under the overall defined by the countries and with broad societal approach that policy is as important as money. input. Governments will need to communicate their goals to citizens clearly, and to send signals Figure 1: A Framework for Support to about the direction and pace of policy reform. MENA Lessons from other political and economic transitions – in Latin America, Central and Eastern Europe and East Asia – suggest that transitions can take a long time, and certainly cannot be planned from the outset. Balancing attention to short-term needs with considerations of medium/long-term sustainability and growth will be a central challenge. Periodic re-evaluation and reorientation will be critical, as will reliable external partnerships. The Role of Multilateral Development Banks (MDBs): MDBs can play a key role – as The longer paper2 outlines some of the key repositories of global and regional knowledge, features of those building blocks, and proposes sources of finance, and honest brokers. Each some of the MDB instruments intended to institution can contribute knowledge and address them. These are summarized below: financial resources, within its own mandate and available resources, in support of country-owned strategies. This paper focuses on the role of principally on transparency of government MDBs, but obviously this takes place within the information, support to civil society for social broader context of donor support as well as accountability, information and communications private financial flows. The overall financing technology, monitoring service delivery, environment is challenging. corporate governance, and moving from A crucial issue in the sustainability of the privilege to competition. governance transition will be the availability of adequate public and private funding for short- 2 2 social protection and subsidies, closing the gap Contact Arab World Briefs: between leading and lagging regions, and Director, Regional Strategy and Programs economic and social participation of women. Jonathan Walters Arab World Briefs Team: Omer Karasapan, Roby -term employment Fields, and Hafed Al-Ghwell – measures, enhancing educational quality and skills matching, labor market reform, and Tel #: (202) 473 8177 migration management. The Arab World Briefs are intended to summarize lessons learned from the Knowledge and Learning activities of the World Bank Group and our partners. the relationship between growth and The Briefs do not necessarily reflect the views of the employment, the role of competition and the World Bank, its board or its member countries. private sector, the importance of regional and global integration, opening markets, the role of Europe, infrastructure gaps in transport, water, energy and agriculture, environmental sustainability and climate change, and infrastructure financing. the increasing role of Regional Cooperation in the programs of MDBs and other partners, principally under the Arab World Initiative, revitalized by the Arab Spring3. 3 For more on the Arab World Initiative (AWI) see: http://arabworld.worldbank.org/content/awi/en/home.html 3