Academic journal article The Middle East Journal

Facing the Market in North Africa

Academic journal article The Middle East Journal

Facing the Market in North Africa

Article excerpt

This article examines the results of economic reform programs since the mid-1980s in Morocco, Algeria, Tunisia, and Egypt. Although these states have liberalized their economies in the face of international and domestic market forces, ruling elites have been adept at maintaining control over the distribution of resources. Selective reforms have prevented the emergence of competitive markets and powerful, autonomous private sectors and have yet to induce a transition to political liberalism and accountable government in North Africa.

For more than a decade, governments in North Africa have been implementing economic reforms inspired by a set of liberal beliefs often described as the "Washington consensus." Morocco led the charge with its 1983 International Monetary Fund (IMF)-- sponsored program, followed by Tunisia, Egypt and then Algeria.1 Most started with a stabilization program, followed by structural adjustment, limited privatization, and encouragement of foreign investment. Since the mid-1990s, a post-structural adjustment agenda has emerged, where the key issues are adaptation to global financial liberalization, the World Trade Organization, and the Euro-Mediterranean Partnership. The prevailing sense is that on top of basic domestic structural reforms, painful and rapid reshaping of external economic relations must be undertaken. The post-adjustment phase promises to have potentially more severe consequences for domestic institutions, private companies, and state budgets.

States in the Middle East and North Africa (MENA) as a whole have little choice but to open up to the global market and liberalize their domestic markets. Those states that delay the most face the most external punishment. Since the mid- 1980s, MENA countries have become increasingly marginalized in the world economy. Hydrocarbon revenues did not recover from their post-1985 drop until late 1999, and worker remittances remained flat through the 1990s. Growth of per capita gross domestic product (GDP) was -0.6% in the 1980s and only 0.9% in the 1990s.2 Growth of real trade as a percentage of GDP from 1985 to 1994 was substantially lower in the MENA than any world region except Sub-Saharan Africa.3 Foreign direct investment (FDI) and portfolio investment in the region before 1996 were negligible when compared to massive net transfers to Asia, Latin America and Eastern Europe.4 From 1990 to 1998, privatization revenues in the MENA amounted to less than 3% of total privatization revenues in the developing countries.5 The IMF estimates that $600 billion is held by MENA nationals in countries outside the MENA, indicating that private investors are not convinced of the credibility or sustainability of structural adjustment in their own countries.6

Tunisia and Morocco are exceptions to this regional trend. Both are touted by the IMF and the World Bank as models for other emerging economies. Their early reform programs were relatively successful, Tunisia having graduated from the IMF program and Morocco having attracted considerable foreign investment. In 1995, Tunisia was the first to sign an Association Agreement with the European Union (EU), followed quickly by Morocco. Latecomers Algeria and Egypt are less prepared to confront globalization. By and large they have delayed difficult reforms and dragged out negotiations with the EU over their own agreements to join the Euro-Mediterranean free trade zone in the next decade. Both have reversed political liberalization of the 1980s in the face of Islamist challenges. Egypt's acceleration of reforms since 1996 has bolstered capital inflows, but as in Algeria, the program is still piecemeal, corrupt, and highly contested.7

This article assesses the results of more than ten years of North Africa's market-- oriented reforms under pressure from international market forces. How have external economic pressures affected government-business relationships and the distribution of resources within ruling coalitions? …

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