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BLOCKED: Politics hinders aid to Arab Spring economies

Egyptian pound at 7-year low ahead of vote result

The international community, including the biggest Western economies and wealthy Gulf Arab oil exporters, pledged tens of billions of dollars of assistance last year. But only a small fraction of that sum has actually been handed over; in some cases, aid flows appear to be blocked or slowed by politics, economic policy or tight state budgets.

June 28, 2012 5:22 by



So while the Gulf governments have a strong incentive to provide enough aid to prevent Arab Spring economies from collapsing, they also have an incentive to dole out the aid slowly in relatively small amounts, thus retaining political leverage over the recipients.

 

Ali Zbeeb, legal advisor to the Union of Arab Banks, which lobbies for the industry around the region, said that because of continued political instability in some countries, Arab and Western donors had begun reevaluating their aid pledges.

 

“No one is willing to inject cash into a system that creates fundamental differences with the donor – this would backfire and defeat the purpose of such support,” he said.

 

The United Arab Emirates announced about a year ago that it would provide $3 billion of aid to Egypt, but the funds have not yet been transferred, according to an Egyptian source familiar with the matter, speaking anonymously because of diplomatic sensitivities. A senior UAE official said late last year that his government was still discussing the delivery mechanism.

 

PRIVATE SECTOR

 

Since government-to-government aid is having only mixed success in solving the problems of Arab Spring economies, many analysts think the private sector needs to become more involved.

 

International Finance Corp, a unit of the World Bank, has invested $3 billion in the Middle East and North Africa since the Arab Spring began, said regional director Mouayed Makhlouf.

 

Instead of handing over large amounts of cash to needy governments, the IFC concentrates on providing loans, equity investments and advisory services to private companies, with a special focus on the small to medium-sized enterprises which are effective in creating jobs.

 

The private sector also featured prominently in one of Egypt’s biggest deals since the Arab Spring: a $3.7 billion financing package announced this month that will allow Egypt Refining Co to build a petroleum refinery on the outskirts of Cairo. The deal, assembled by private equity firm Citadel Capital, included private investment funds, Egypt’s government, state-owned Qatar Petroleum and multilateral lenders.

 

Ultimately, analysts said, Arab Spring economies will need to find ways to lure more foreign direct investment to fill the gap left by limited foreign aid.

 

“The reality is that external support is unlikely to be sufficient. Further reforms to improve the business environment, increase education levels and attract FDI into the region will also be crucial to the overall development effort,” said David Cowan, Africa economist at Citigroup. (With additional reporting by Patrick Werr in Cairo; Editing by Andrew Torchia and Adrian Croft)



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