Their expectations have not been met.

On the contrary, conditions got worse with business activities retrenching and labor intensive sectors such as tourism, services, transport and the infrastructure negatively affected by civil strife.

What should governments do to provide the much needed immediate relief and at the same time set their countries on a sustainable growth path.

It takes time to create a productive middle class, but would the youth be willing to wait.

Of course, uncertainty and instability are to be expected during the transitory period. Economic conditions in countries experiencing revolts and civil strife will first get worse before they get better (the J curve).

Similar to what had happened in the Philippines when Marcos was removed from power in 1986, in the East European Countries during the 1990s and in Indonesia when Suharto was toppled by a popular uprising in 1998, it generally takes several years for a new regime to consolidate and for far reaching economic reforms to be implemented.

During this transitory period, there would be several risk elements that need to be properly managed, we are going to highlight five of them:


Transitory governments should send a clear message that reforms will be implemented and measures will be put in place to boost employment opportunities and create new jobs. However, it is a process and will take time to implement and its impact will be felt over the medium term rather than immediately. Managing people’s expectations in this regard requires presenting a clear road map of the proposed reforms and policies and a specific time frame as to when their results will become visible. If communicated clearly by a legitimate leadership, using effective social media channels, the youth may be convinced to be patient and accept short term sacrifices for the promise of a more prosperous future. If expectations are mismanaged, the region would risk seeing another wave of protests in the months ahead.


Private sectors have lost credibility in countries witnessing uprisings. The cosy relationships between previous governments and businessmen led to corruption and nepotism. There is a prevailing impression that privatization and liberalization measures introduced in the past two decades have benefited only a small minority and did not generate the much needed employment opportunities. Governments should not reverse privatization measures in order not to put the public sector back in the driver’s seat. They should also resist the temptation to treat all businesses who dealt with the previous regimes as necessarily corrupt. This will damage private sector confidence and disrupt economic activities. On their part, the private sectors should reach out to the youth and convince them that they are willing and able to provide the support they need in order to break the cycle of poverty and unemployment. Businesses should become more proactive in mentorship, skill training and funding of innovative ventures. The obsession of governments and businesses should be on nurturing entrepreneurship and encouraging the youth to start their own businesses. These would have forward and backward linkages with other sectors of the economy, creating new employment opportunities in the process. The new world that is taking shape will rely more on talent and less on capital and natural resources. “Talentism,” “populism” or even “capitalism” is the answer to the region’s problems.


It is plausible that the more organized Islamic parties would gain grounds in the first round of the elections as we have seen in Tunis where Al-Nahda Islamic party won the largest block in the recent elections. It will take time for the “Facebook liberals” to organize themselves and win seats in newly elected parliaments. Eventually there will be a new forward looking secular parties with young and progressive leadership. In the meantime, and with the new politics taking center stage, the Islamist parties will be obliged to take the responsibility and thus the credit or the blame for policies they promote rather than criticize from the side lines. They will have to reinvent themselves and address such worldly matters as unemployment and economic growth, curb corruption, show more religious tolerance and become in effect Muslim Democrats, similar to the Christian Democrats in Europe. In countries like Turkey, Indonesia and Malaysia political Islam and democracy have been co-habitating fairly comfortably. There is no reason why Arab countries experiencing cannot emulate the Turkish model of governance. The world has started to accept the new realities on the ground that Islamic parties are bound to play a pivotal role in the new governments of the region. The West’s policy of picking and choosing which democracies to recognize and which ones to isolate would undermine the fledging Arab democracies.


In several countries of the region, and with the first sign of discontent, governments rushed in with generous packages including pay increases to the public sector employees, higher subsides and new employment opportunities in the government and security forces. The measures announced amounted to five percent of GDP in Jordan, 10 percent of GDP in Egypt, and 25 percent of GDP in Saudi Arabia and Algeria. In the near term, such counter cyclical expansionary fiscal policy is needed to maintain social cohesion and mitigate the impact of the downturn. However, this policy is not sustainable. It fuels inflationary pressures, adds to budgetary deficits and leads to higher government debt in the oil importing countries. By designing budgets within multiyear framework and committing to medium term fiscal balance, governments would be able to anchor market expectations and attain long term macroeconomic stability. The commitment should include concrete plans to unwind current expenditures, freeze public sector jobs when needed, target cash subsidies to the poor rather than subsidizing commodity prices, provide a “safety net” for the most vulnerable in society, channel government resources for training and for financing of small and medium size enterprises, and put the private sector back in the driver seat.


The global economy is heading into a period of weaker economic growth. Measures to reduce budgetary deficits in the US, Europe, and the emerging countries will add to contractionary pressures in the region next year. This would reflect negatively on oil prices, tourism, trade and FDI’s. Furthermore, the large European banks are under pressure to improve their capital adequacy ratios forcing many of them to deleverage, cutting loans rather than raising equity. European banks have more than $2 trillion in loans outstanding to emerging countries outside Europe. This would make it more challenging for the highly indebted corporates and countries of the region to refinance their maturing debt. Alternative sources of funding will have to be explored including export credit agencies, Islamic finance and capital markets instruments.