Towards Globalizing Egypt, Jordan and the Gulf: Challenges, Contentions and Considerations

Posted in Broader Middle East , Democracy | 30-Aug-10

Egypt and Jordan

The IMF and World Bank have vaunted Egypt and Jordan as cases of globalization’s success. Through decades of economic opening, both countries were able to register good scores on certain economic liberalization and openness indices. Looking at the 2009-10 Economic Competitiveness Index, both Jordan and Egypt enjoy a considerably good ranking. Ranking 50th Jordan stands above Lithuania, Brazil and Turkey while Egypt stands at 70th placing higher than Greece and Croatia. On the Globalization Index Jordan is positioned at a relatively high rank. Jordan ranks 36th, which puts it above Chile and the United States. On Political Globalization, indicating the diffusion of government policies, Egypt ranks 12th in the world.

Faced with a war-ravaged economy, after the 1973 Yum Kippur War, Egypt faced stagnant growth, double-digit inflation, a budget deficit hovering around 20% and a BOP crisis. Consequently, Egypt was forced to engage in agreement with the IMF to, supposedly, radically transform the economy into a more stable and efficient one. Traditionally, the state contributed to 70 percent of the economy, but due to the aggressive privatization scheme within a decade the private sector grew to contribute to almost 60 percent of the GDP.

The majority of the population - employed in agriculture or working in state companies - was to bear the brunt of privatization, deregulation and ‘streamlining’ of public services. A great number of companies laid-off and/or scrapped benefits, bonuses and holidays for thousands of previously state employees. The social costs of such destabilizing shocks were immense.

The result was a distorted “free” market economy wherein as Egyptian economist Yumn al-Hamaqi describes, “…You find a small number of businessmen controlling economic affairs in pursuit of their interests.” Labor Unions were emasculated, repressed and brought under direct state control. Despite the creeping inflation rate resulting from the privatization and subsidy-cuts on services, for over 25 years (1985-2010), the national minimum wage would hover below $6.3 a month. Despite strong average rate of GDP growth in the last decade and a half, youth unemployment actually soared from 23.1% in 1998 to 34.1 in 2005.

In Jordan, growth has come from just a few sectors such as manufacturing, telecommunications, and construction. In the manufacturing sector, most jobs are concentrated in cheap-labor-oriented export-zones, wherein investors mainly come from South Asia. Yet, 54 percent of some 40,000 new jobs in manufacturing have gone to non-Jordanians. The same trend applies to the booming construction sector. Despite economic growth at an annual average of 6 percent in Jordan, there has been very little achieved in the way of inequality reduction: the Gini coefficient was 0.379 in 1997, 0.361 in 2002, and 0.355 in 2006.

Moreover, both Egypt and Jordan are still lagging behind in terms of Human Development Index, ranking 123rd and 96th respectively. On the Quality of life Index, developed by The Economist Intelligence Unit (EIU), both Jordan and Egypt have a disappointing score of 55 and 51 respectively out of a perfect score of 100. In terms of Hunger reduction, as reflected on the Hunger reduction index, not-so-liberalized economies of Syria, Azerbaijan and Armenia have shown a significantly greater improvement.

Also, there is still a failure bring a key sector, the women, into the economic mainstream. In terms of gender equity, both Jordan and Egypt are among the laggards. In the global gender gap report in 2009, Egypt and Jordan ranked at the bottom of the list. Egypt ranked 126th while Jordan ranked 113th out of 132 countries.

The increasing integration of the two countries into the global market made them highly vulnerable to external shocks. Thus, the recent global financial crisis had a devastating impact on the two countries, since about 3 million in Egypt, and 420,000 in Jordan are directly employed in the sector. Egypt’s economic vulnerabilities were most pronounced during the current financial crisis, where revenues from the Suez Canal, tourism and commodity exports took a deep hit, which led to a sharp decline in the GDP growth rate. In Jordan the economy slowed down, dropping from a 7.9 percent growth level in 2008 to 2.8 percent in 2009. The budget deficit widened to $1.55 billion dollars (7% of the GDP), while remittances (amounting to more than 20% of the GDP) declined by 8.4 percent.

The Gulf

In the recent decade, the oil-rich and sparsely populated countries in the Gulf Cooperation Council (GCC) have emerged as the strongest regional performers on a number of key development and competitiveness indices. Flushed with cash, financially-liberalized and under a comprehensive security guarantee by the US, these countries have managed to transform into breathtaking oasis in the hot and dry shores of the Persian Gulf. The GCC member countries have had significant improvements in their rankings in terms of competitiveness and openness. For instance, on the Global Competitiveness Index, Qatar, UAE, Saudi Arabia, Bahrain and Oman rank 22nd, 23rd, 28th, 38th and 41st respectively. On the Index of Globalization, Bahrain, UAE and Kuwait rank 41st, 48th and 52nd respectively.

However, the global financial crisis would have a devastating effect on the region. Increasingly integrated into the global capitalist system, the region would suffer monumental losses in the aftermath of crisis. Stock markets in the region have experienced staggering declines in value of between 20-60 per cent while stock market indices recorded a drop of 30-60 per cent in the last quarter of 2008. Dubai’s demise was most dramatic precisely because of its deep integration within the globalized financial system. Arab investors lost around $600 billion dollars due to direct stock declines. The banking sector was another victim of the crisis, with Kuwait’s Gulf Bank losing up to $1.54 billion in the same year. Nevertheless, flushed with cash from the oil boom years, governments had to step in to deal with the crisis head-on. The sovereign wealth funds, mostly invested in US dollar, lost up to 40 per cent of their value. The booming real estate sector took a deep hit too. For instance, in the last quarter of 2008, Dubai experienced a 42 per cent decline in average residential sales prices.

Yet, the biggest anomaly surrounding the spectacular growth of the GCC countries lies in their immensely closed political system and ‘slave-like’ labor practices endured by millions of their ‘guest’ foreign workers. Concerned by the extent of abuses and lack of legal protection within the GCC countries, the United Nations has consistently criticized and pressured the host countries to tackle the issue and introduce major necessary reforms to protect human rights and labor rights of the migrant workers.

Despite many symbolic attempts at legislative reform, millions of domestic workers in the Persian Gulf do not enjoy the protection of law; hence cases of physical abuse, forced confinement and even death at the hands of employers continuously hunt foreign workers. There has also been little success vis-à-vis bringing abusive employers into justice, especially when they are well connected and the victim – and his/her country - has little leverage over the hosting government.

Another source of abuse is the “sponsorship system”, wherein the workers need the sponsorship of an individual or company in order to remain in the country legally, therefore the workers are practically at the mercy of the sponsor. This has proven to be very dangerous for worker’s rights and even safety.

In Saudi Arabia, wherein almost 8 million guest workers contribute to the country’s economy, domestic workers frequently endure forced confinement, food deprivation and severe psychological, sexual and physical abuses. In 2009, 127 Filipinas, mostly domestic workers, fled their workplace in UAE after enduring maltreatment and long crushing working hours with insufficient food and nonpayment of salaries. The problem is that in the UAE there is no specific law that provides clear stipulations on the extent of working hours, weekly rest day, overtime pay or workers’ compensation. The construction industry in the UAE has also been a site of immense abuse such as withholding of workers’ travel documents and unsafe working environment leading to avoidable illnesses and death. The conditions were so severe that in August 31, 2009, about 2000 migrant workers demonstrated over low wages, but the police and labor officials quickly dispersed them.

On the political front, none of the countries in the region can be classified as ‘electoral democracies’, and it seems the monarchies are beginning to even further consolidate their hold on power. The top political leadership is not subject to electoral contestation, and even a minimalist form of democracy – through a competitive, popular, and fair elections – is far from realization. It is not surprising to see that the Persian Gulf countries stand at the bottom of the list in different indices that measure democracy and political freedom around the world: Democracy Index, Polity IV, and Freedom House.