EL PASO, Texas – The Arab Spring is a time of public protests against national Arab Middle Eastern governments, calling for simple policy change and even complete political overhaul at times. Recent high-profile protests came in countries like Egypt and Libya, forcing change and capturing the attention of the world.
Nations like Tunisia hope to affix economic expansion and pluralistic society to their respective national discussions. In fact, the overall Middle-Eastern environment is a polarizing one where political unrest weighs first on the minds of many. However, the unintended consequence of Arab Spring movements is a boost to other nearby economies.
Additionally, the differences between Western and Chinese investors is literally changing the economic landscape of a region already heavily in flux. To be more precise, nations close to those undergoing transition are reaping the benefits of people and capital moving across borders to escape the upheaval. Consider Dubai, a small nation renown for a strong economy. A report from Business Insider suggests that people from regions of flux gravitate their persons and capital to Dubai because it’s safer.
All eyes were on the Arab Spring nations in the midst of their changes, yet many investors conservatively kept their cash in the Gulf region where it was unaffected since the area has, as a whole, been much more favorable for doing business. Sectarian violence has underscored safety issues while economic downturns elsewhere have discouraged risky international investment. A report in ‘The Economist’ notes Tunisian GDP growth shrunk in the Arab Spring from three percent to nothing, with similar results in Egypt and Libya. Unrest is keeping people away from banks, and breeding further economic woes evidenced from high unemployment rates among young people.
Foreign investments also shrink and most, if not all, oil production halts. Lawless areas in the midst of protest are, of course, no help to the situation, despite the feeling that a more open socio-political scene would attract the private sector. After all, “Tunisia has a well-educated workforce and decent infrastructure. Libya has the world’s eighth-largest oil reserves; the flow is expected to reach 2010 levels later this year.Egypt has a large domestic consumer market.”
The same report cites that workers in mid-eastern nations will strike to vent collective frustration, further hindering the economy. Unrest, furthermore, causes instability in government, effectively increasing bureaucracy that keeps the private sector at bay. In the event of widespread government change, established businesses that may have been linked to the old regime may find their position in the economy weakened. But not all foreign investment in the region has faltered.
Chinese investors, attracted more by the positives, are now filling the void left by Western investors. An Albawaba report claims that China is no stranger to risky foreign investment, seeing opportunity in situations others traditionally shy away from. China is looking to establish an economic manufacturing footprint in the Middle East and has the advantage of initiating major infrastructure projects in certain nations where structures have fallen into disrepair. The Arab world is responding favorably, welcoming an increased Chinese presence over American and European investment and expect “Sino-Arab” trade to exceed $300 billion in 2014. China has quietly and expertly encroached into regional areas in which the United States has had a presence, gaining economic and political points all the while.
The U.S. Chamber of Commerce, also cognizant of the potential for private sector growth in the Middle East, held a panel in September to assess Western economic prospects. High unemployment and socio-political tensions are cause for concern, but the positives are clear. Some from the private sector even fired back at U.S. Chamber of Commerce representatives, noting that they were being informally pushed to enter an unfamiliar area and market; unwilling to take the risk. A U.S. expert countered with,
“…four key recommendations for U.S. businesses with operations or interest in the countries discussed. These were: Engage the sizeable informal sector, lead anti-corruption campaigns, identify ways to contribute to filling gaps in education and training of the local workforce, and rehabilitate the image of the private sector through corporate social responsibility campaigns.”
The U.S. private sector remained hesitant and cautious nonetheless. Evidently many things are affecting the level of foreign investment in Arab Spring states in the Middle East. On the Western end, slow economic conditions are limiting risky moves and political tensions between the West and Arab states underscore that risk.
Arab citizens are largely becoming fans of Chinese investment and products, seeing them as a better alternative to any partnership with America or Europe. China has picked up on this in a big way, continuing to push into the region and improve already mutual beneficial economic relationships with Arab nations. Only time will tell how this ultimately plays out, but the U.S. and Europe may want to take a page out of China’s book and take a calculated risk to remain economically relevant in the Middle East.
– Dave Smith