New agenda for the Middle East

02 June 2011

Political instability and the death of President Obama’s Arab-Israel peace initiative are dominating the world’s headlines. But a new Middle East may emerge from the turmoil of 2011

The first five months of 2011 have been challenging. Regime change in Tunisia and Egypt coupled with persisting violent disorder in Libya, Syria and Yemen have revived fears that the region is chronically unstable and prone to unpredictably chaotic eruptions.

Hopes that President Obama would be able to drive forward Arab-Israel negotiations have foundered on Israeli intransigence. Rather being forced to make concessions to the Palestinians, Israeli Prime Minister Benjamin Netanyahu turned the tables on Obama in May and forced him to make further public concessions to Israel instead.

The outside world has backed military intervention in Libya and sanctions against Syria. The G8 meeting in France agreed a $40 billion support package for Egypt, Tunisia and other “Arab Spring” nations. Such generosity tends to confirm the view, however, that the region has gone wrong and only foreigners can help.

The daily reality for businesses dealing with the Middle East’s largest economies is radically different. The GCC, which accounts for half the Arab world’s GDP, will probably be the fastest-growing part of the world economy in 2011. Saudi Arabia, the Middle East’s largest economy, is reaping the twin benefits of higher oil prices and production. Its GDP will expand by 20 per cent in dollar terms this year. Regional tracker MEED Projects estimates that the value of construction contracts awarded in the GCC will grow to up to $140bn in 2011 and to up to $150bn in 2012. These trends and the enormous infrastructure and other plans suggest the GCC construction market could expand to $200bn by the middle of the decade. There is no more promising projects market on earth.

The G8 meeting in France agreed a $40 billion support package for Egypt, Tunisia and other “Arab Spring” nations

Increases in public investment are at least partly motivated by the desire to address complaints about jobs and living standards, but this is only part of the GCC’s response to events since the start of the year. Stable but potentially vulnerable regimes in Jordan and Morocco have applied to join the organisation. This reflects the recognition that regional turbulence and the weakness of non-oil economies have to be tangibly countered. MEED’s Arabian World Construction Summit at the end of May heard that Jordan has secured financial commitments for its $4bn national railway programme, the largest project in the kingdom’s history. Some of it will come from Abu Dhabi, Kuwait and Saudi Arabia. When complete, the railway will provide a direct link from the Gulf to Europe via Syria and Turkey and create a bond of steel that will connect the GCC with the northern states of the Arab world.

Egypt is expected to be the biggest beneficiary of GCC largesse. The best way to support its faltering economy is for GCC governments to place deposits with the Egyptian central bank to help it prevent a devaluation of the pound. Direct investment is also possible but will only develop following the formation of a new government after elections in September. The hope in the GCC – and the belief among the Egyptian business community – is that it will be moderate and modernising.

Yemen’s probably ungovernable but its troubles can be contained. The big headache is developments in Syria. President Bashar al-Assad succeeded his father in 2000 amid hopes of quickening economic and political reform. The invasion of Iraq in 2003 by a US-led coalition provoked a reaction in Damascus due to fears that Syria was being targeted by Washington. The suspicion that Syria was implicated in the murder of Lebanon’s Prime Minister Rafik Hariri in 2005 has indelibly tarnished Al-Assad’s international reputation. The violent repression of street demonstrations since March has been the final straw.

Speaking at the State Department on 19 May, Obama called for Al-Assad to reform or “step aside”. There seems to be no alternative to Al-Assad, his family and his clique, but the anger on Syria’s streets suggests the status quo is unsustainable. The military coup option, which has worked reasonably well in Egypt so far, is less compelling in Syria’s case. Assad’s brother, Maher, commands the military and its loyalties appear unshaken.

It’s difficult to see, however, how Al-Assad’s regime can any longer credibly provide the leadership Syria deserves. A Syrian government enjoying majority assent that is open to regional collaboration would be welcome in Lebanon and elsewhere in the Arab world. Investment and technology transfer from the region and beyond could unlock Syria’s industrial, farming and tourism potential.

…the region and its friends need to look beyond the challenges of today to the opportunities that a region led economically by the GCC could unlock

The missing Arab link is Libya, where demonstrations for change in Benghazi have degenerated into a military deadlock. The disappearance of Qaddafi would clear the way for a new government better equipped to capitalise on the human and material resources of the Mediterranean’s most creditworthy economy.

This all looks like an impossible dream. But the region and its friends need to look beyond the challenges of today to the opportunities that a region led economically by the GCC could unlock. An association of stable and modernising Arab states is essential for the region’s long-term development. It is also the only force capable of dealing decisively with Iran on the one hand and Iran on the other.

Sceptics will scoff. Events since January have deepened the impression that the region’s problems are incurable, but the story of the future is yet to be written. A new agenda for Middle East is being defined by this year’s turmoil. It is demanding and will take years to address. The first step is recognising that the old one no longer works.

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