9781422284476

I NTRODUCTION

extortion, and to allow greater transparency over public finances and over licensing to crony privateers. Better governance is necessary but no sufficient. The region still needs to figure out a developmental model and find its niche in the global economy. Unfortunately, the timing is not favorable. Mature economies are slow growing, and emerging markets in Asia and Africa are generally more competitive than the Middle East. To suc- ceed, the region has to leverage its assets, starting with its geo- graphic location between Europe, Africa, and Asia. Regional busi- nesses and governments are looking to anchor themselves in south- south relationships. They see the potential clientele of hundreds of millions in Africa and South Asia reaching middle class status, many of whom Muslim. The Middle East can also count on its vast sources of energy, and on the capital accumulated during years of high oil prices. Financial investments in specific sectors, like trans- port, have already made local companies like Emirates Airlines and DP World global players. With the exception of Turkey and Israel, the weakness is human capital, which is either unproductive for lack of adequate education, or uncompetitive, because wage expectations in the region are rela- tively higher than in other emerging economies. The richer Arab countries have worked around the problem by importing low-skilled foreign labor—immigrants who notoriously toil for little pay and even less protection. In parallel, they have made massive investments in higher education, so that the productivity of their native workforce eventually reaches the compensations they expect. For lack of capi- tal, the poorer Arab countries could not follow that route. Faced with low capitalization, sticky wages and high unemployment, they have instead allowed a shadow economy to grow. The arrangement keeps people employed, if at low levels of productivity, and in a manner that brings no tax revenue to the state.

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