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Follow the money

By Samir Aita April 2011

Those Arab states that have erupted this year - and others that may follow - want freedom and democracy, but also to end the way their countries have been run for the financial benefit of rulers and their friends
The reasons for the Arab spring go deeper than immediate demands for freedom and democracy. The protesters want to end the political economy and the authoritarian regimes in place since the 1970s.

Monarchies in the Arab world have been absolute, and life-long presidents (with hereditary office) ruled the republics, because they created a supreme power above both state and post-independence institutions (1). They set up and controlled their own security services to ensure that their powers would endure; the services escaped parliamentary or government supervision, and their members could reprimand a minister and impose decisions. It costs money to run such services, and the clientelist networks of one-party states. The funds derive not from public budgets, as do those for the police and the army, but from different sources of revenue. (The New York Times recently reported that Muammar Gaddafi had demanded in 2009 that oil firms operating in Libya should contribute to the $1.5bn he had promised to pay in compensation for the Lockerbie terrorist murders - or lose their licences. Many paid. And Gaddafi's immediate cash holdings of billions of dollars are thought to be funding his mercenaries and supporters to defend him.)

After the spectacular 1973 rise in crude oil prices, Middle Eastern revenues increased considerably. Through the distribution circuits, and in collusion with major multinationals, part of the revenue went direct to the coffers of the royal or "republican" families instead of to the state. Nor was oil their only source of revenue. After there were no more commissions on major public contracts, civil and military, because of budget deficits and structural adjustments, new opportunities arose. In the 1990s there were mobile telephone network launches, and the first major privatisations of public services, with public-private partnerships and build-operate-transfer (BOT) contracts. Mobile networks had massive margins, especially at the start when better-off clients were prepared to pay high prices. The major multinational operators, influential businessmen and governments fought to capture the income. (There is evidence for this in the legal dispute over Djezzy , the Algerian branch of the Egyptian operator Orascom , and the Algerian military, and in a previous dispute between Orascom and Syria's Syriatel , which happened just as the first large Arab multinationals emerged.)

The globalisation of Arab economies and the demands of the International Monetary Fund - supported by the European Commission for the Mediterranean countries - tightened the regimes' hold on the economy, especially after the oil price crash of 1986. The ensuing decline in public investment and weakening of the governmental regulatory role ensured that the major multinationals held monopolies or oligopolies in exchange for sharing revenue with the powers-that-be. The senior management of the global corporations knew exactly where major decisions were taken and who the imposed local partners were for any new investment: the Trabelsi and Materi families in Tunisia, the Ezz and Sawires in Egypt, the Makhlouf in Syria, Hariri in Lebanon. The Sawires sold their shares in Orascom - Mobinil to France Telecom and offloaded their cement holdings before the Egyptian revolution. Najib Mikati, who had sold Investcom to the South African group MTN, is currently in charge of appointing the new government in Lebanon.

Enthralled by the Dubai miracle, all the Arab countries ventured into real estate transactions that allowed them to dissimulate a public/private interest mix. Land was expropriated and then sold cheaply to property developers. Historic city centres were neglected but the local riad (traditional palaces) were renovated by international investors, charmed by the exotic East, and property prices rose on a par with London, Paris or Tokyo. None of this would have been possible without banking, which facilitated the laundering of revenue and found ways to recycle it in real estate and commercial transactions. Banks were also the instruments of governments, providing credit to secure the lasting allegiance of local entrepreneurs.

Erosion of public services

But the state weakened and public services eroded. Where there was a need to send representatives abroad or to tap expertise at home, government members were co-opted; the good ones were technocrats from major international institutions such as the World Bank, but they lacked electoral legitimacy or programmes for which they would be accountable. The state ceased to be seen as a bureaucracy. Even the army weakened as well-equipped praetorian guards guaranteed the continuity of power (2).

Arab governments bore no resemblance to those after independence, which had electrified the countryside and established universal public education. Public services deteriorated, as reports by the UN Development Programme (UNDP) observed, because of privatisations entirely for revenue raising. Even Jeddah in oil-rich Saudi Arabia only has running water one day a week; and a Saudi prince authorised construction work in a valley without planning drainage, resulting in lethal floods.

After every scandal there was an anti-corruption campaign, to little effect. The campaigns implied that corruption was a moral or religious issue rather than a systemic predation by leaders in alliance with business. Human dignity and work values were flouted. About a third of the working population in Arab countries is in the unofficial economy, in small jobs not included in unemployment statistics, which have been in double digits for a decade. Another third are self-employed, or employees without work contracts, social security, retirement or union rights. The concept of the employee is disappearing, outside the public sector and government. There, social rights have been maintained and so jobs are coveted, especially by women, but openings are rare, because of the "structural adjustment" policies required by government spending cuts. The labour market is also fragmented by massive migration, both permanent (Palestinians, Iraqis or Somalis fleeing war) and temporary (mainly Asian), where migrants' economic and social rights are eroded, because the exploitation of migrant labour is now a source of revenue.

When the generation of the Arab demographic boom reached working age in the 2000s, connected by the new internet culture, the base toppled the summit in Tunisia and Egypt, and the entire social structure was shaken. People have been surprised by the many demands, social and otherwise, released by the revolution. Arab countries now have to rebuild the constitutional state, where power is finite and subject to institutions, instead of levitating above them. Government-dependent sources of revenue will have to be dismantled, as will monopolies, to release entrepreneurial energy. There will have to be states that guarantee public and social freedoms for all, so that workers have rights, and the states will have to be accountable, based on social consensus. It isn't going to be easy, because the world, including Europe, isn't going that way.

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