The political outlook
Published: 05 January, 2012
The Arab Spring may be the most important geopolitical shift since the end of the Cold War. Attention now turns to the construction of new orders, and the outcomes are far from clear. Survey respondents agreed that expectations are high and emerging governments need to respond to long pent-up demands.
Of the North African countries undergoing revolution, Egypt will dominate headlines in 2012 due to its size, regional significance and uncertain trajectory, says David Cowan, Africa economist at Citigroup. The emerging constitution could set the tone for political reform in the region. “If Egypt acquires a national assembly which can write a constitution as the Tunisians have, you start to get a much more positive picture for North Africa going forward,” he says. Uncertainty in the interim is undermining business confidence, which could result in lacklustre Egyptian growth and additional political pressure in 2012, says Graham Stock, chief strategist of Insparo Asset Management. Egypt saw 39 percent of market capitalisation wiped out over the last year, the worst performance of any African country that FTSE measures, says Jonathan Copper, managing director for the Middle East and Africa at FTSE Group.
Tunisia, a “glimmer of hope” according to Mr Cowan, made a strong start to regime change with elections to a constituent assembly and a clear path towards the formation of a representative government. However, a smooth election is only the start. Henri-Bernard Solignac-Lecomte, head of the operations and effectiveness unit at the OECD, cautions that the emerging Tunisian leadership could suffer the same fate as their predecessors if they do not deal with the employment crisis. “There is a need to show very quickly that something is being done to foster job creation,” he says.
Mr Stock believes Libya faces perhaps the steepest task in the region: building an entirely new institutional order. “There are a lot of challenges to be resolved,” agrees Mr Cowan. Libya lacks democratic institutions or structures which thus need to be created from scratch, in a fractious environment. However, Kem Ihenacho, a partner at Clifford Chance, believes Libya’s talented workforce and natural resources can help the process of rebuilding.
While Morocco has not undergone a revolutionary moment, the monarch passed modest reforms to give more power to parliament. Zin Bekkali, CEO at Silk Invest, is optimistic about the country’s prospects. Clifford Chance has opted to base its new Africa office there, says Mr Ihenacho, a decision taken on the basis of stability, business environment, and service hub considerations.
All told, the high number of variables means short-term political predictions are difficult, says Dr Costas Vayenas, head of emerging markets research at UBS. Nonetheless, as the constitutional set up becomes clearer the region can benefit from new opportunities and emerge from disappointing development performance in recent years. While growth rates in North Africa may be negative in the near-term, the political change could be transformational, says Stefan Dercon, chief economist at the UK Department for International Development.
Survey respondents did not expect a contagion effect south of the Sahara following the Arab Spring, although Robert Bates, professor in the department of government at Harvard University notes that political forces could spill down to Mali, Chad and Nigeria.