Middle East status update: A cool Spring

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1 Middle East status update: A cool Spring Robert Powell Senior analyst, Middle East Global manager, Riskbriefing June 2012

2 Introduction: where are we now? Despite all the setbacks, it s been a remarkable 18 months Four leaders ousted Combined time in power: c.130 years Four free-and-fair elections One country slipping into civil war Assad s control is slipping And political reforms elsewhere New constitution in Morocco Freer press in Algeria; new elections Oman parliament given legislative powers Elections planned in Qatar

3 So why all the doom and gloom? Reasons are both economic... Disruption hit business activity Capital inflows dried up Non-oil exporters hit by high oil prices (...but politically prehistoric Gulf states booming!)...and of course political There was no dominos of dictatorships Some revolutions fell short The post-revolutions states are struggling to manage the transition

4 Progress requires clear process Tunisia First to undergo revolution First to witness Muslim Brotherhood s rise Wobbling Took four months to write preamble to constitution Deadline of October for full draft highly optimistic Salafi radicals causing trouble Islamists vs Secularists The curious case of the Libyan ex-pm.but getting there Constitutional referendum likely to be delayed, but process is clear Army back in its barracks Economy recovering Exports and tourism on the up, but euro zone not helping

5 Progress requires clear process Libya Civil war made the challenge all the greater Dealing with Qadhafi hold-outs Disarming militias Rebuilding Building a new system Early in the process, but progressing pretty well Parliamentary elections next month (tiny delay) New draft constitution to follow (more federal system?) Oil almost back to where it was and sanctions lifted But rebuilding will be slow; horrendous civil service Still on target Election will be intriguing Muslim Brotherhood likely to do well, but so will personalities (Belhaj) But will the NTC stand down as promised?

6 Process, what process? Egypt Transition always poorly planned Amended constitution did not clearly define transition Parliament s powers ill-defined Presidential elections before a constitution SCAF steps in Parliament dissolved, after constitutional court ruling Economy a mess Disruption declined, but foreign reserves more than halved IMF funding seemingly not forthcoming, but Saudi cash helps On a knife-edge SCAF arguably more incompetent than sinister, Moursi has legitimacy Elected leaders will have to learn to share power with the military Constitutional process is key: if draft team fails, SCAF can appoint its own

7 Too close to call Yemen Syria Doing better than expected! New president proving surprisingly assertive Al-Qaida on the backfoot But long, long way to go Coalition under strain Urgently needs foreign donor support Slipping into civil war Assad grimly hanging on FSA taking fight into Damascus Economy tanking But currency still not collapsed and no hyper-inflation Regime survives, at least for the time being But it loses control over large swathes of the country (buffer zones?)

8 Democratic scraps Algeria, Jordan, Morocco, Oman Lower-level protests and promises of constitutional change Power remains in the hands of the very few Reforms in Morocco went the furthest Algeria more unpredictable, and Jordan shaky Saudi Arabia Counter-revolutionary Helped squash revolution in Bahrain Organised undemocratic transfer in Yemen Supporting Salafis across North Africa But problems of its own Gerontocracy!

9 To have and have not Albert Camus All modern revolutions have ended in a reinforcement of the state Fiscal revenue, US$ bn Population 28m Population 86m Economist Intelligence Unit forecasts

10 What a difference a spring makes Real GDP growth (%) Egypt Tunisia Yemen Syria Libya Saudi Arabia UAE Economist Intelligence Unit forecasts

11 Democratisation could improve growth drivers Taking a long-term perspective, democratic systems have a better record in delivering economic prosperity that authoritarian ones

12 Political outlook: Now and then 1) A meagre democratic harvest Reforms result in creation of democratic structures in some countries but fail to deliver genuine accountability or popular participation. Most countries shift to some form of hybrid regime. 2) Survival of authoritarianism Efforts to build democratic institutions derailed. Authoritarian rule remains the norm. 3) Democratic breakthrough Egypt, Tunisia and Libya provide positive examples. Representative democracy (with weaknesses) takes root throughout region. 60% 20% 30% 20% 10%

13 Conclusion: One and a half cheers for Arab democracy Despite the setbacks, the Middle East is changed forever But growing risk that democratic change will be checked or reversed Significant long-term economic payoff only if democracy takes root A reminder that autocracies have inherent structural weaknesses A regime s longevity should not be confused with stability The revolutionary movement in the region has a legitimacy that will endure