Blame flawed economic growth models for MENA's crises

As I write, Lebanon, Egypt and Tunisia are all suffering from severe economic crises and are negotiating with the International Monetary Fund (IMF) to be granted loans.

Despite major differences in the size and nature of the economy of these countries - the GDPs of Lebanon, Tunisia and Egypt are USD 20 billion, USD 47 billion, and over USD 400 billion respectively - they share similar characteristics, such as being greatly indebted and suffering from high levels of inflation. Lebanon actually recorded one of the highest inflation rates in the world in 2021 and 2022 of 155% and 178%.

Both in Egypt and Lebanon, national currencies have also suffered major losses in value. In late January 2023, the Egyptian government agreed to a third devaluation of the Egyptian pound. The national currency suffered a depreciation of 70% between March and December 2022.

Similarly, since the eruption of the Lebanese financial crisis in October 2019, the Lebanese pound has lost more than 95% of its value against the USD, destroying people’s savings and sending the prices of basic goods skyrocketing. The Lebanese government has even announced that it may change the pricing of foodstuffs in supermarkets to the US dollar.

"This mode of capitalist production is characterised by under-developing productive sectors, overdeveloping services, and fuelling various forms of speculative investment, especially in real estate"

The global Covid-19 pandemic and the effects of the Russian invasion of  Ukraine have added salt to the wound, exacerbating these economic crises by provoking rising prices and shortages of essential commodities such as wheat and fuel oil.

In the case of Egypt, the world’s largest wheat importer, the war in Ukraine also triggered capital outflows, with foreign investors withdrawing about USD 22 billion from the country's local debt market, mainly in the form of the liquidation of Egyptian treasury bills.

Still, the economic crises facing these three nations cannot be blamed entirely on the pandemic or the war in Ukraine. Rather, the causes are rooted in the model of economic development in Tunisia, Egypt and Lebanon, and more largely of the Middle East and North African region.

This model of economic development is blocked by its specific mode of production, which is a speculative and commercial capitalism characterised by short term profit-seeking. This mode of capitalist production is characterised by under-developing productive sectors, overdeveloping services, and fuelling various forms of speculative investment, especially in real estate.

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Egypt has particularly witnessed in these past few years a significant growth of megaprojects in the real estate sector. The "New Administrative Capital", dubbed Sisi-city, launched in 2015, and aptly symbolises this dream of grandeur of the Egyptian regime.

Spread out over more than 725 square kilometres in the middle of the desert, the new city should house a presidential palace and all the state institutions, but also twenty-one residential districts, an airport, thousands of schools, a business district and universities. The cost of this new city is estimated at a staggering USD 50 billion.

These countries have also opened their economies to foreign direct investment, developing the export and service sector – especially tourism. At the same time, the states have kept taxes on both foreign and domestic companies low and guaranteed them cheap labour. They have not hesitated to use repressive measures to protect the interests of these companies and cracked down on workers, peasants, and the poor.

These societies are characterised as well by extreme class inequality, high rates of poverty, and high unemployment, especially among youth. Those with education and valued skills leave their countries for opportunities elsewhere.

As such, Tunisia, Lebanon and Egypt are all largely dependent on remittances from workers abroad. The latest crises have reinforced these dynamics.

In Lebanon, the rate of poverty has increased tremendously from 25% in 2019 to above 80% in 2022, while nearly forty percent of qualified doctors and thirty percent of nurses have left the country permanently or temporarily, due to the continuous deterioration of their living and working conditions.

In Tunisia, the poverty rate increased from 14% to 21% from 2020 to 2021 and unemployment rose by 2.8%. Moreover, youth unemployment rose to 37.8% in the third quarter of 2022, up from 35.4% in 2019, while Tunisian youth are fleeing by sea to Europe at the highest rate since before the overthrow of former dictator Ben Ali in 2011.

In 2022, approximately 18,000 Tunisians arrived in Italy, while twice that number were intercepted along the journey to Europe. Around 580 people either drowned or were reported missing after leaving Tunisian shores in 2022.

"Cairo, Beirut and Tunis are or have been negotiating with the IMF to be granted loans. In exchange, they generally implement neoliberal reforms and austerity measures that will negatively affect the population and add to their suffering"

At the same time, economic crises are generally used by ruling elites as an opportunity to pursue and/or deepen economic liberalisation, often with the assistance of international financial institutions.

These policies should not be considered as merely “technocratic”. Rather they are attempts to restructure and push forward changes in ways that were previously foreclosed and significantly extend the reach of the market in a range of economic sectors that have thus far been largely state dominated.

States have cut public services, removed subsidies to basic necessities like food, and privatised state industry often selling them to capitalists linked to the centres of political power.

In this framework, Cairo, Beirut and Tunis are or have been negotiating with the IMF to be granted loans. In exchange, they generally implement neoliberal reforms and austerity measures that will negatively affect the population and add to their suffering.

Tunisia, which is indebted to more than 80% of its GDP, obtained a staff level agreement from the IMF in mid-October 2022 for a new loan of USD 1.9 billion. To obtain the loan, the Tunisian government announced numerous austerity measures, including cutting food and energy subsidies, and overhauling public companies.

On its side, Egypt has to reimburse USD 18 billion of its previous borrowing over the next five years. In 2016, Egypt received a USD 12 billion loan from the IMF, attached to austerity measures and pledges to stimulate the private sector.

Egypt received a new loan of USD 3 billion a few weeks ago. In exchange, Egypt’s government agreed to move to a flexible exchange rate, privatise state-owned enterprises, and slow down public investment in national projects.

To add to the troubles, the accumulation of foreign debt of these countries also has political consequences. Cairo is the second most indebted country to the IMF after Argentina. In a decade, Egypt’s external debt has quadrupled - from just under USD 37 billion in 2010 to USD 158 billion in March 2022.

"These neoliberal policies and austerity measures implemented over the last few decades have never been a way out of the crisis, but rather have nurtured the"

This situation links these capitals to foreign and international financial markets, which in turn have an interest in preserving the stability of the current political systems and its ruling elites so that reimbursement can continue, even if it means turning a blind eye to human rights issues. Local authoritarianism feeds on the dependencies created by global finance.

These neoliberal policies and austerity measures implemented over the last few decades have never been a way out of the crisis, but rather have nurtured them and blocked economic development, while socio-economic inequalities have increased.

Contrary to claims made by the international financial institutions and Western states, especially the US, that neoliberal reform would bring about democratisation, it has produced the opposite: deepening neoliberal authoritarianism.

Joseph Daher teaches at the University of Lausanne, Switzerland, and is an affiliate professor at the European University Institute in Florence, Italy, where he participates in the "Wartime and Post-Conflict in Syria Project." He is the author of "Syria after the Uprisings, The Political Economy of State Resilience".

Follow him on Twitter: @JosephDaher19

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Opinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab, its editorial board or staff.