Investing in the Middle East during the Arab Spring

These past three months in Amman I have spent my Mondays at an internship at the Jordan Investment Board, a semi-government organization tasked with enticing foreign investors to bring their business to Jordan, through publishing flashy literature on the vital economic statistics in Jordan and researching and meeting with potential investors around the world. My interest in the economics of the region led me to this organization, and I have been doing research on companies that the Jordan Investment Board deems potential investors.

As a student of political science and economics, one issue that is particularly interesting to me is the effects of the recent revolutions in the Middle East and North Africa on investment in Jordan’s developing economy. I first considered this issue when a coworker told me of his frustrations with a potential investor he had spoken with over the phone. In his view, this particular businessman showed his political ignorance in assuming all Arab countries are now politically unstable. In short, the company was scared off.

But was my coworker correct—is it wrong to assume that any and all Arab countries could be susceptible to revolt?
I decided to discuss this problem with my coworkers and supervisor at the JIB. I learned that investors were initially scared away in January by the Arab Spring revolutions and the prospect of instability and possible revolution in Jordan. Investors observed the movement that began in Tunisia and moved its way into Egypt, Libya, and Syria and feared revolution could occur in Jordan, as well, I was told. Their apprehension was certainly understandable—these regimes all appeared stable before they collapsed (though the situation in Syria remains unresolved), so why should Jordan be any different? Protests in Jordan at that time stemming from increasing inflation and unemployment as well as political tensions between the Palestinian and Jordanian populations served to further exacerbate these fears.

The King of Jordan subsequently enacted a series of reforms, made visits with European leaders to ease fears of instability, and overturned parliament—twice. My supervisor, in charge of the business processes outsourcing and information technology department says these things have made Jordan appear more stable. In the year that has passed since the Arab revolutions began the King was able to avert the protests from going the way of revolt, Jordan has remained calm and in September Jordan was invited to join the Gulf Cooperation Council—you can think of it as an EU for gulf nations. Resulting from these developments, Jordan is seeing investment slowly pick up again. One further consequence of the revolutions is that companies who had committed to investing in Egypt before the overthrow of Mubarak are now looking elsewhere in the region to open factories and branches. For some of them, Jordan is a brighter alternative, and I was told that at least three major companies have committed to investing in Jordan through this route.

At least for the present, it would appear that Jordan remains a bastion of stability, and as long as this is the image Jordan projects, investment will continue and the economy will maintain its growth. It is also appears that monarchies in the Middle East and North Africa (including Jordan, Morocco, Saudi Arabia, and several other gulf states) are more stable than their dictatorial counterparts—good news for Jordan. Quite a lot hinges on what happens in Syria, however, and remember that the Assad regime was assumed to be stable—and then suddenly it was not. I have discussed with professors and journalists how vitally important Syria is to Jordan—it is a major trading partner, and political tensions are arising from refugees coming through Jordan’s northern border. Jordan petitioned the Arab League to except trade with Jordan from its recent sanctions on Syria (though sanctions with exceptions are not really sanctions at all). The cessation of trade with this key trading partner would have profound short-term effects on Jordan’s already-discontent workforce. A collapse of the Syrian regime could be even worse for Jordan’s stability—though political freedoms are far more lacking in Syria than in Jordan, who is to say that Jordan could remain undemocratic in light of democratic uprisings in neighbors Egypt and Syria?

There remain questions about the Arab Spring, the answers of which are of great import globally but will also have a powerful effect on investment in the Middle East. First and foremost, does a second wave of uprisings lie in wait for the region, perhaps in monarchies and Algeria who have so far been mainly unshaken by the revolutions? Second, most of the revolutions in the Arab Spring states were preceded by periods of growth and economic liberalization; can the moderate Islamic parties that are winning pluralities in Egypt and Tunisia inspire confidence in the economy again?

I would propose that the acquisition of political freedom is not only more pressing than stability and economic continuity, but necessary for Middle Eastern economies to bloom. Indeed research shows that free, democratic governments are more conducive to economic growth than other forms of government. The struggle between sustaining the recent economic booms in the Middle East and North Africa and affording its citizens their desired political rights and dignity is vital for the region’s future.

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