For investors Arab Spring dangers remain

Political risk consultant sees more upheaval as causes of instability remain.

Egyptian stock exchange 311 (photo credit: REUTERS)
Egyptian stock exchange 311
(photo credit: REUTERS)
Investor, beware! The Middle East and North Africa (MENA) remains the world’s most political risky place by far, though maybe not for the reasons you would expect.
Maplecroft’s 2012 Political Risk Atlas, which measures some 500 factors relating to exposures and opportunities for businesses and investors, found that nine out of the 10 countries globally showing the fastest rising short-term risk trends are in the Arab world.
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They include Algeria, Bahrain Egypt, Kuwait, Libya, Morocco, Oman, Syria and Tunisia. The only non-Arab country is the Ivory Coast.
The list includes countries that have undergone a relatively smooth political transition during the first year of the Arab Spring, like Tunisia, as well as others that successfully quelled protests, like Bahrain and Oman. But Anthony Skinner, Maplecroft director responsible for MENA, said the region’s political gyrations are far from over and may emerge in unexpected places.
“The MENA region is particularly dynamic and if we see a slowing down of protests – though certainly not in Syria and Yemen – it does not mean that demands for reform have been quelled,” Skinner told The Media Line.
The political turmoil represents a fundamental change in the attitudes and aspirations of the region’s people that will not be easy for the region’s veteran rulers to resist with piecemeal reforms, he said. Indeed, Skinner said he prefers to call the phenomenon of the last year the “Arab Awakening” because it better describes the changes occurring in the region.
“An awakening means that people have been able to open their eyes and see what is possible,” Skinner said. “This is a long-term challenge for autocrats throughout the region. It’s not a dynamic that will be confined to single year. It will persist into 2012 and beyond.”
The turmoil of the past year has seen three regimes fall and two more – in Syria and Yemen – edging toward collapse. Analysts are divided about the long-term political and economic ramifications of the upheavals, but for now they have taken a heavy toll in slower economic growth for most MENA countries and declining foreign investment and tourism.
The World Bank said in its Global Economic Prospects report released on Wednesday that gross domestic product for MENA would expand 2.3% this year, an increase from 2011 but slower than the global rate of 2.6% and half the pace for the world’s developing economies. The 2012 estimate for MENA, the bank noted, assumes that “domestic drag on growth from political uncertainty begins to ease.”
Not everyone is convinced that the Arab Spring is leading the region into anarchy. In a commentary appearing on Al-Arabiya television news website on Wednesday, Hamad Al-Majid, a journalist and former member of the Saudi National Organization for Human Rights, contends that Egypt and Tunisia are rapidly stabilizing.
“The security scene there [in the two countries] can be characterized as cohesive – the lowest degree of stability – but certainly this is much higher than the degree of chaos,” Al-Majid wrote. “Evidence of the ‘coherent’ security status of Egypt and Tunisia can be found in the remarkably successful elections.”
Maplecroft said it identified a particularly combustible relationship between countries that score poorly for corruption and human rights violations but get relatively high marks for “digital inclusion,” meaning access to social media. It said that in countries such as Bahrain and Egypt with a high correlation between the two, will continue to “drive unrest – of varying intensity – in these countries” as people can easily communicate grievances and organize protests, the report said.
Maplecroft said that although Iran has largely escaped the upheavals of the past year, it shares many of the factors that led to regime change in the Arab world and is susceptible to political instability.
“If we see multiply effects of [the opposition] Green Movement, on the one hand, and social frustration for the rest of Iranian population, we could see the regime facing very significant pressure ahead,” Skinner said.
He said Tehran’s aggressive rhetoric toward the West and the Gulf Arab states, including a veiled threat to close the strategic Strait of Hormuz, is an effort to deflect attention away from domestic problems, especially ahead of parliamentary elections slated for March. “The problems of the domestic front are being reflected in the saber rattling,” he said.
Skinner said he is less concerned about the rise of Islamist movements in Arab Spring countries, noting that the parties that have won elections, including Ennahda in Tunisia and the Muslim Brotherhood’s Freedom and Justice Party in Egypt, have so far shown themselves to be pragmatic and conscious of the need to revive their countries’ stalled economies.
“If we look at Tunisia and the strength of Ennahda, they portray themselves as similar to Turkey’s AKP, which has been very pro-business,” Skinner said. “The Muslim Brotherhood has been very pragmatic. It, too, is concerned with economic development, growth and growth that trickles down to the masses …. Many of its members are successful businessmen.”
For radical Islamists like al-Qaeda, the Arab Spring has marked a setback because the mass protests that erupted were led by liberals while at the same time the targets of Islamist wrath, the region’s autocrats, are being removed from power, Skinner said.
Another threat to business and investors that Skinner largely discounts vis a vis the MENA region is so-called resource nationalism, where governments take over energy and other natural resources or demand a greater share of profits. Maplecroft said its resource nationalism hotspots include the oil-rich MENA countries Iran, Iraq and Libya.
But in the case if Libya, at least, the only Arab Spring country on the list, Skinner said he remains sanguine. “If we look at the overall trajectory and statements by the NTC [the National Transitional Council], its orientation is largely pragmatic,” he said.