Doubts surround aid to Arab Spring countries

Urgently needed funds haven't arrived yet; economists worried assistance may be squandered, countries don't have right structures in place.

By DAVID ROSENBERG / THE MEDIA LINE
Egyptian protests (Reuters) 311 (photo credit: REUTERS/Mohamed Abd El-Ghany)
Egyptian protests (Reuters) 311
(photo credit: REUTERS/Mohamed Abd El-Ghany)
The latest package of aid and loans offered over the weekend to the economies hardest hit by Arab Spring turmoil may be less help than its extensive new $38 billion total suggests; emergency funds have been slow in coming and the recipients aren’t in a position to make good use of long-term aid, economists said.
The Group of Eight (G-8) finance chiefs nearly doubled the amount of aid they will make available to Middle East governments and expanded the list of recipients to include Morocco, Jordan and maybe Libya. In May, Tunisia and Egypt had been promised $20 billion in aid.
RELATED:Al Qaida releases video supporting Arab SpringTurkish PM starts 'Arab Spring' tour in CairoCounting other institutions, including the World Bank, the International Monetary Fund (IMF), regional banks and the Arab Monetary Fund, grants and loans that could be made available to the Arab Spring economies may reach nearly $80 billion.
The aid is supposed to be delivered over the next two years, but with the Arab Spring economies buckling under the weight of unrest and political uncertainty, officials and economists said assistance is needed urgently and hasn’t arrived. Indeed, as G-8 leaders were meeting Saturday in Marseilles, an Egyptian mob stormed Israel’s embassy in Cairo causing Prime Minister Essam Sharaf to offer his resignation and sending Egyptian share prices lower.
“These countries need economic reform and political reform. They go together. But I’m not sure they have a very clear picture of what they’re doing. There is a kind of vacuum,” Paul Rivlin, a professor of economics at Tel Aviv University, told The Media Line. “The announcement expressing confidence in these countries in itself has economic meaning, but you can’t hide that these countries are in a mess.”
While the ministers welcomed turnaround plans presented by the Arab Spring governments, many of the Middle East’s economies are suffering from low growth, high inflation and rising unemployment even after strikes and protests led to the ouster of dictators and put them on the road to political reform.
Growth in the key Arab Spring economies has slowed while government spending has ballooned. In Tunisia, Minister of Planning and International Co-operation Abdel Hamid Triki estimates gross domestic product will grow 1% this year, compared with 3.5% in 2010. Egypt's net foreign reserves have fallen by $11 billion so far this year to $25 billion in August. London-based Capital Economics estimates Egypt’s GDP grew a scant 1.8% in the fiscal year ended June 30, less than the rate of population growth.
Even in countries that have avoided serious unrest or have substantial oil wealth, governments are in acute need of aid. Morocco’s GDP growth will probably accelerate this year, the International Monetary Fund says, but government handouts will boost the budget deficit to as much as 6% of GDP. Libya will need help to tide it over until it can bring oil exports to pre-war levels, which could take months.
But even as Arab Spring economies reel, countries like Tunisia and Egypt, which were targeted in the first round of assistance in May, have yet to receive the great majority of the aid pledged by Western and Arab governments.
Egypt’s Finance Minister Hazem el Beblawi, said his country had received only $500 million of  the $7 billion promised by the United Arab Emirates (UAE) and Saudi Arabia, although he noted that he is holding discussions and expects an agreement on the disbursement by the end of the year.
Tunisia said it was still waiting for assistance; “As of today, (we have received) nothing,”  Finance Minister Jalloul Ayed  said during a meeting of Arab finance ministers on Wednesday, London’s Financial Times reported on September 7.
But Magda Kandil, executive director of the Egyptian Centre for Economic Studies in Cairo, said the delays were inevitable because the aid is supposed to go to the private sector to support trade and investment and ensure long-term growth. Those have yet to emerge.
“From a donors’ perspective they would like an action plan. You cannot put billions of dollars into whatever,” Kandil told The Media Line. “They want domestic partners to press ahead with defined projects so they can establish priorities.”
She warned that aid would not have the desired effect of creating jobs quickly unless it is directed to small and medium-sized enterprises. Those kinds of businesses are better able to invest capital quickly to create or expand their business and generate much needed jobs.
Egypt’s unemployment rate reached 11.8% in the second quarter, down from 11.9% in the first, but higher than last year’s 9%.
A second element is ensuring that these businesses have access to export markets by opening up the economy more to more foreign trade and foreign investment. But, Kandil warned, there is a growing chorus of voices opposing both arguements on the grounds that such policies in the past hadn’t worked.
“Investment pre-revolution was in large companies and the trickle-down effect was very small,” Kandil admitted.  “These flows should now be managed in a better way to complement the domestic agenda.”
But Rivlin said the problem for Egypt and other regional economies is not about a lack of capital.  The private sector can’t access capital because institutional mechanisms – such as properly registered land that would enable owners to use their real estate as collateral for loans – are often lacking.
Proposals for a “Middle East Marshall Plan,” echoing the financial assistance that the US provided to a war-shattered Europe in the years after the Second World War, are misguided, Rivlin said. The transitional governments that have arisen with the downfall of the region’s despots have not begun to tackle fundamentally economic issues, making the prospects of  effective use of aid even less likely than before.
“The Marshall Plan worked because the countries absorbing capital had the structure to absorb it …. The Middle East doesn’t need a Marshall Plan,” he said. “With the collapse of governments, it’s even harder.”