Political Economy of the Contemporary Middle East Working Group I
On February 24, 2019, the Center for International and Regional Studies (CIRS) brought together a number of scholars to commence a new research effort on the “Political Economy of the Contemporary Middle East.” Over the course of two days, the participating scholars discussed a wide array of topics, including: neo-liberal policies post the 2011 uprisings; business interests of Middle Eastern militaries; private security and military companies; economic integration in the Levant and GCC; foreign direct investments (FDI) in North Africa and the GCC; state bureaucracy and the economy in Iran, as well currency and black market manipulations in Iran; development policies in the post-2011 GCC; and the emerging transformation of state-business relations in the GCC.
Angela Joya began the working group discussions by speaking on the topic of “Neoliberal Policies in the Post-2011 Middle East.” Joya provided a review of public sentiment towards economic conditions across the Middle East, and focused on different countries in the region in her discussion. Joya suggested that over the past seven years we have seen a range of public protest in the region which focus specifically on the economy and peoples’ grievances over poor economic conditions. The Arab Uprisings commenced with cases of self-immolation in Tunisia, a brutal form of protest to highlight the lack of financial and material wellbeing for average citizens. Since the Arab Uprisings while this momentum has diminished it has not complete gone away, and neither have the underlying economic issues. In Morocco public demonstrations erupted over the declining standards of living, rising costs of everyday goods, and increasing unemployment. In Egypt, since 2016, there has been a dramatic increase in poverty after the IMF-imposed structural reforms, however public protests have diminished. The economic conditions in Yemen, Libya, and Syria are dire, while Jordan is also seeing increasing economic dissatisfaction. While in several cases the economy is being aggravated by war and conflict, we see people trying to escape war and conflict, but also steady streams of Middle Eastern migrants trying to leave their countries as a result of economic hardship. Joya suggested that further academic exploration is needed to examine the extent of neoliberal reforms in the Middle East and what the implications of the new economic reforms are on social, economic, and political conditions. Joya stated that governments initially responded to protests and public signs of dissatisfaction by adopting bigger fiscal policies, increasing wages, and pumping money into the market. This led to heavy government borrowing and was then followed by restrictive spending measures, subsidies being cut, and then prices being liberalized, an ongoing cyclical repetition seen in this region.
Ahmed Hashim shifted the discussion to “Military Inc.-Private Sector Relations.” Hashim said that while militaries are designed to fight internal and external enemies, in the Middle East, they do a great deal more than that. Militaries in the Middle East have frequently engaged in the economy, often causing significant distortions. This provokes the question: Why and how does the military get involved in the economic sector? The military’s role in the economy increased dramatically as states moved from state-owned to liberal markets. Under the Socialist regime of Nasser in Egypt, for example, the military was involved in arms production, but it was also involved in the private sector and importation of products. Under Sadat the military’s engagement in the economy increased significantly, and since Mubarak there is no sector of the Egyptian economy that the military is not involved in. Hashim also asked: What impact does the military’s involvement in economy have on the economy and private sector? As Sadat dismantled the Nasser system, the military expanded dramatically in the economy. And since 2011, it is estimated that the military controls around 30 percent of the Egyptian economy. The setup encouraged the military’s involvement in real estate rather than expanding the production base. Hashim concluded his presentation with recommending further research on conscripted labors; the impact of the military on the private sector; competition versus collaboration between the military inc. and private sector; and competition among quasi-military inc.
Building on Hashim’s presentation, Shir Hever focused the discussion on “Private Security and Military Companies: The Case of Israel.” Hever highlighted five main areas that deserve in-depth academic study insofar as the Israeli military-industrial complex is concerned. The first area is the privatization of the Israeli security sector. Such privatization expanded to include the military, police, and prison services. Second is the Israeli Laboratory Model. In this regard, arms producing companies in Israel have marketed their products globally as experimented on-ground. However, Hever alluded that the success of such arms and technologies is questionable if the relationship between political events and the financial reports of companies is tested. He argued that an Israeli arms-producing company’s financial reports reached its peak in 2009 after the war in Gaza, and reached a second peak in 2012 after the second Gaza invasion. However in 2014 with the third Gaza invasion, the company’s revenues did not increase. The failure of the company’s arms and technologies to subjugate Palestinians and refrain them from indulging in resistance against the Israeli occupation shows the failure of the Laboratory Model. Finally, Hever claimed that a study of Private Military & Security Companies (PMSCs) and the internal conflicts between Israeli security, business, and state elites are worth studying.
Imad El-Anis shifted the discussion to “The Shifting Boundaries of Economic Integration in the Levant.” El-Anis raised a number of areas worth exploring with regards to economic integration in the Levant. He claimed that commercial institutions do not have the pacification effect, but information and communication technology (ICT) development could be a driver of economic integration in the region. However, ICT has been completely ignored in the region. El-Anis also alluded to the importance of special economic and infrastructure zones driven by resources, such as the aquifer in south of Jordan. He claimed that such resources can serve as modes of cooperation, reshaping the way production and trading is taking place. Among the topics that deserve studying is energy reserve discoveries in eastern Mediterranean. El-Anis argued that such discoveries are contentious, exploited by Israel. Finally, El-Anis claimed that the “pacifying effect” should be studying given that militarized interstate disputes need more attention given their impact on economic cooperation.
Leading the discussion to another significant sub-region of the Middle East, Mumtaz Hussain Shah presented on “The Puzzle of Foreign Direct Investments in North Africa.” Shah raised four important, original research questions. The first question has to do with the puzzle of productivity spillover in North Africa. Second is: Why have not FDIs contribute to short-term economic growth? And how can this be solved? Third, How do GCC states, despite the structural economic impediments and heavy regulation of the market, still increasingly receive FDIs? And what are the lessons learned for the Levant? Finally: How to make effective use of MNCs? Shah argued that there is not significant regional FDI investment in North Africa. Thorough and effective implementation of regional integration schemes, third generation of trade elements, investment in related expense, introduction of investor-friendly policies and nondiscriminatory legal and ethical frameworks could significantly improve FDI in the region.
Kian Tajbakhsh presented on “State Bureaucracy and Economy in Iran.” He claimed that the growth of state led developmentalism has been significant since the 1980s. Such phenomenon is not solely ostensible in Iran, but across the Arab Middle East as well. However, the lack of up-to-date data on the entire state bureaucracy remains an issue worth exploration. Tajbakhsh also alluded to the importance of studying performance and effectiveness of the state in economic growth, service delivery, human development, etc. This discussion led to the question: How state-bureaucracy is designed at different scales? Finally, Tajbakhsh argued that there is also a need to conduct a comparative analysis with other countries in the region to understand the impact of Iran’s theocratic system on the country’s economic system, and which other state bureaucracies in the region are operating under similar paradigms.
In sharpening the discussion on Iran, Esfandyar Batmanghelidj discussed “Currency and Black Market Manipulation.” Batmanghelidj claimed that the Riyal has lost around 70 percent of its value. Such devaluation raises the questions: To what extent is such devaluation a result of sanctions or development policies? And what are the relationships between trade exchange rate and inflation in Iran? In addition, given that oil revenue contributes substantially to Iran’s foreign currency reserves, which is important for imports heavy industrialization, sanctions on Iran’s sales of oil and gas has had an impact on foreign exchange, and hence on the prices of goods in Iran. Germane to this discussion, Batmanghelidj claimed that the Iranian Riyal is worthwhile for poor people. While for middle classes, the pasture of currency exchange is much higher as they seek purchases of imported electronics, automobiles, etc. There is an assumption that devaluation can boost exports. However, this does not hold under sanctions. Exporting of goods despite their low prices is not possible under sanction regimes. Batmanghelidj also highlighted that there are three different foreign currency exchange rates as result of the limited foreign currency reserves: one for essential goods, another for other goods, and third for hard currency at exchange shops. In addition to that, rent seekers have manipulated this system to generate profit, hence posing more challenge to importers. Finally, Batmanghelidj concluded his presentation with two questions: How do sanctions put pressure of Iran’s foreign currency reserves? And how do domestic rent seekers respond to the depletion of foreign currency reserves?
Yousuf Al Balushi focused his presentation on “Development Policies in the Post-2011 GCC.” He argued that the GCC countries face a number of issues in implementing developmental policies. Among such issues are: the consistency of public policy to achieve development goals; weak economic leadership in the GCC; the economic structure in the GCC states and size of government; and rent-seeking behavior. Al Balushi argued that other structural impediments also have an impact on development policies in the GCC, including: the state-business-society relations model, government tenders and societal expectations; the lack of business-led development. Al Balushi concluded his presentation with emphasizing the need to empower that private sector through strategic partnership with the state. Such endeavor would increase production and exports, which are fundamental to move toward more sustainable FDI mechanisms in the GCC.
Building on Al Balushi’s presentation, Ashraf Mishrif discussed “The Shifting Boundaries of Economic Integration in the GCC.” Mishrif kicked off his presentation by asking: Are we heading back towards globalization? With BREXIT, the failure of NAFTA to remain intact, and the cracks in the GCC in light of the on-going crisis, there is a need to re-examine the global economic structure. In this regard, Mishrif raised the questions: Is the theory of regionalism still valid on the global scale? And what factors contribute toe the retreat of regionalism? There have been consistent setbacks in regionalism efforts in the GCC. This is ostensible in the common market endeavors. Inter-regional trade in the GCC suggests that regional integration in the GCC is marginal. It never amounted more than 10 to 11 percent. In addition, there have not been attempts to use common markets to enhance regional integration in the GCC. It was the United Arab Emirates that was defined as the gateway to the GCC, leaving out other GCC member states. Hence, the implementation of regional integration in the GCC is worth exploring. Mishrif argued that one problem with the GCC integration is the hierarchal structure of the organization, starting with the General Secretariat that does very little in forming strategies. As for bureaucratic structure, it has failed to claim supranational mandate that could drive economic cooperation among the member states.
Anastasia Nosova concluded the working group discussion with her presentation on “Changes and Continuities in State-Business Relations Post-2011 Arab Uprisings: The Case of the GCC.” Nosova claimed that across the GCC, there is a class of merchant elite that has disproportionate privileges, and depends on the state. This class does not influence policies, with exception of Oman and Kuwait to an extent. It also competes with the rest of society over resources. Since 2017, state-business relations have appear to have gone through major transformation, particularly evident in the case of Saudi Arabia. There is a transformation in the nature of business in the GCC from being in the hand of business families and few members of the ruling families to a state instrument of development. For the past two years, contracts have been distributed on the basis of merit while previously these were awarded more on the basis of networks and connections between the state and business elites. Further studying this emerging trends in state-business relations in the GCC is critical and will be included in this project moving forward.
Participants and Discussants:
- Yousuf Al Balushi, Central Bank of Oman
- Zahra Babar, CIRS – Georgetown University in Qatar
- Esfandyar Batmanghelidj, Bourse & Bazaar, Iran
- Imad El-Anis, Nottingham Trent University, UK
- Ahmed S. Hashim, S. Rajaratnam School of International Studies, Singapore
- Islam Hassan, CIRS – Georgetown University in Qatar
- Shir Hever, The Real News Network
- Angela Joya, University of Oregon, US
- Mehran Kamrava, CIRS – Georgetown University in Qatar
- Suzi Mirgani, CIRS – Georgetown University in Qatar
- Ashraf Mishrif, Qatar University
- Anastasia Nosova, The Risk Advisory Group, UK
- Mumtaz Hussain Shah, University of Peshawar, Pakistan
- Kian Tajbakhsh, Columbia University, US
- Elizabeth Wanucha, CIRS – Georgetown University in Qatar
Article by Islam Hassan, Research Analyst at CIRS