Economic Reform Efforts in Egypt and Syria: Contributions to Regional Stability?

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By Duaa Elzeney – Syria and Egypt place the lowest in the Middle East in ease of doing business and economic competitiveness, respectively, according to the World Bank’s Doing Business project and the World Economic Forum’s Arab World Competitiveness Report. The weakness of the Syrian and Egyptian economies and their levels of poverty constitute a significant source of vulnerability to national and, subsequently, regional stability.

Oil and agriculture are the foundations of Syria’s economy. By 2010 Syria will become an importer of oil and by 2020 it will completely deplete its oil reserves at current rates of exploitation. The agriculture sector also suffers from low productivity. Water deficits are expected to worsen, with adverse impacts on agriculture. Syria, like most of the Middle East, cannot create enough jobs to keep up with labor force growth of 4% per year.

A new source of economic pressure is the presence of an estimated million Iraqis in Syria. The population influx has a direct impact on basic services such as water, sewage, medical care, education, rising prices of basic goods, and overcrowding in Damascus. Government resources in Syria are stretched to the limit, and Iraq-related costs are estimated at $1 billion per year. Continued strains on the country’s public services and infrastructure could lead to public unrest.

Syria has a history of nationalization of major enterprises and a poor record of adapting to globalization. The last couple of years have signaled a change in policy, with the signing of free trade agreements with neighboring countries and the EU. President Bashar al-Asad now places priority on the development of the economy, and believes a strong economy can ensure stability and regime survival.

Growth in the Egyptian economy has been improving since 2001, fueled by the tourism sector, natural gas discoveries and exports, larger merchandise exports, and a growing service industry. But persistent weak points remain government subsidies for basic necessities (accounting for more than 10% of annual GDP), low foreign direct investment, and external debt. Twenty percent (14.8 million people) are below the poverty line and 10.5% (7.7 million) are unemployed, according to official sources. The subsidies remain politically important, although economic officials recognize that reducing subsidies is an important policy goal.

Egypt’s Prime Minister, Ahmed Nazif, appears committed to pursuing aggressive reforms. President Mubarak is generally more cautious and appears resistant to trimming the excess from the enlarged public sector. However, growth over the last year seems to be encouraging even to Mubarak, who has declared his support for “boldness, more economic reform and liberalization of the economy.”

Low female participation in the economy is a problem both states could remedy, to the benefit of economic growth. Barriers to open competition for jobs undermines productivity. Higher female participation rates could lead to an increase in family incomes by as much as 25%. There is also regional evidence that improving access of jobs to women might improve business governance, as women are less prone to corruption than men.

Looming above the issue of economic reform is the challenge of political reform, which can be an accelerator of economic growth, but neither Syria nor Egypt are committed at the leadership level. The development of a nation is a multipronged approach, with economic reform as one of a combination of factors necessary for sustainable long-term development and stability. Economic growth may be achieved in the short-term without significant political reform, but it will not be sustainable.

Duaa Elzeney is the Middle East Research Associate with the project Regional Voices: Transnational Challenges at the Stimson Center.

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