Arezki Unscripted

Is it possible that the global economic downturn that we are witnessing today may actually have a beneficial impact on the region? Most commentators, including myself, have been talking about and insisting on gloom-and-doom scenarios as an outcome of the crisis, but there are also good things that could emerge as a result.

To begin with, there is a sense of inevitability in the current downturn. For example, the elements that drove the frenzied economy since 2003 did not make sense and was a disaster waiting to happen. Speculative practices and greed resulted in unprecedented price hikes of commodities worldwide that virtually reduced the purchasing ability of millions of consumers to zero. The price of energy also made no sense, peaking at an incredible $140 per barel. We read about real estate in the United States as the first domino to fall, but speculators in North Africa too have been busy driving prices up and up to dangerous levels. Housing prices in low-level economies of North Africa have been either on par or even more expensive than in wealthy Europe and North America. That just escapes common sense and the theories of classic economics. Among the speculators in the region are wealthy Arab sheiks who have been more than eager to re-channel their oil revenues into creating luxury real estate sites and cities in North Africa, a region that needs more sustainable economic and infrastructure programs than luxury penthouses. Even the heart of Arab petro-capitalism, Dubai, is likely to take a hit from speculative policies of its rulers, poor depth perception, bad planning and heightened expectation.

The current state of economic contraction is perhaps nature telling us it is time to reset the clock back to where it should be. I believe that a correction of sort is in order and long overdue, whether some call it a recession or even a depression. Are we all going to benefit from it? Not at all. The transition can be painful for many, in particular for those highly tied to the global commodity markets. Workers in the oil sector, in particular those employed by foreign companies operating in the Sahara are facing an uncertain future and possible massive layoffs. Same for steel workers in places like El Hadjar in the city of Annaba, Algeria. Parent company Arcelor Mittal is facing a tough economic environment and layoffs could be coming soon. Same story for Morocco’s phosphate and fertilizer giant OCP. With demand for its products down, the company has virtually stopped operating and struggling to maintain its payroll obligations.

While such examples abound, there is going to be a light at the end of the tunnel. First, the decreases in commodity and energy prices bode well for the populations and households of the region. This means 2009 will bring more relief to the dangerously strained household finances. Longer term, the region will continue to push for reforms. In this issue of the Journal we argue that there is a class of entrepreneurs across the entire region that could help propel the national economies into the 21st century, taking some distance from the political-military elites that have dominated body politic for decades. This new class of business leaders is likely to help reshape the region’s economic agenda, and then naturally dragging with them the political system. And that’s only good for everyone, including for those who dream of an integrated North Africa.

Let me know what you think. Post your opinion below and thank you.