A quick fix for Arab Spring economies

An awful lot of talk at the World Economic Forum (WEF) is about long-term, strategic and fundamental issues, so it was a real pleasure to find someone who delighted in identifying what made a good, quick fix.
Richard Shediac of Booz and Co’s public sector practice has been looking into what governments in the transition economies of the post Arab Spring can do to satisfy the high expectations of their people.
“Their starting point is more difficult because of the political instability, high unemployment [particularly among the youth] which is compounded by the young demographics, and a dissatisfied and unfulfilled middle class,” he told me.
Therefore, in this situation, governments need to look for quick gains, which Shediac says they can find in three areas: structural reform, funding and fostering the private sector. “All the old topics of ensuring transparency, open markets, reforming education and the labour markets and instilling good governance will take years and will not help the immediate problems.”
The structural reforms he suggests include 1. Setting up special economic free zones so that businesses can start up quickly and operate independently of legacy laws and rules. 2. Setting up new and independent regulatory authorities with a mandate to drive development in particular sectors, such as telelecoms, and so avoid the control of legacy bureaucracy. 3. Do more about communication to the public so that the people know both the problems and the successes and are not frustrated by nurturing unrealistic hopes.
International aid
On funding, Shediac spoke of two areas where governments can make quick gains. They can get international assistance from the International Monetary Fund (IMF) and others, but to do so, they need to prepare a credible, long-term plan for reform. He pointed to Egypt where a $5 billion (Dh18.4 billion) package is available but delayed, waiting for the IMF to be convinced that Mursi’s government is serous about reform.
But the other quick gain is to cut subsidies, although this has to be done sensitively and gradually, otherwise it can trigger huge social upheaval. Shediac pointed out that most subsidies are not means-tested and go to all residents, whether rich or poor, so can save governments a lot of money by a gradual introduction of a new subsidy regime that maintains the social safety net but stops supporting those that do not need subsidies.
This rationalisation is all the more important because in the wake of the Arab Spring, subsidies have been increased in many countries. Shediac said that across the region, between 2010 and 2012, government capital spending (on long term constructive projects) had fallen, but total government spending had risen as they rushed to increase subsidies and government jobs.
The third area in which governments can make quick gains is in supporting private sector activity. Bearing in mind that governments cannot employ everyone, it is important that private sector start-ups are made easy.
Shediac was much in favour of private-public partnerships as a way to give enough confidence to attract investment and funding, which also frees up government money for other more productive spending, and also creating essential jobs.
One-stop-shop
Other government actions that can be done quickly and would support the private sector include setting up a one-stop-shop system of getting new businesses licensed and able to start operating.
Shediac was anxious to point out that all these ideas for quick government gains are not standalone projects and they have to fit into a coherent long-term plan for better government management of fiscal resources. All Arab governments face rapidly growing populations and increased longevity, which is putting the governments under pressure to increase their revenues.
The struggle to do this, while also meeting the aspirations of the people, is one of the great challenges of the next five years in the Arab world. This is why the quick-fix ideas that Shediac listed need to be an important part of any transition government’s thinking.