American University of Beirut

Understanding Capitalism in the MENA and the Process of Neoliberal Reform

​​​Joseph Daher

Alongside the absence of democracy, or its significant shortcomings, the widespread economic marginalization and intense socioeconomic grievances constituted one of the most important causes of the uprisings that erupted in the Middle East and North Africa (MENA) region in 2011 and the more recent ones in 2019. Behind the appearance of positive or decent macroeconomic performance, regional countries suffered and continue to suffer from similar underlying economic symptoms that can be traced back decades. In this article, I seek to analyze capitalist development in the MENA region and the process of neoliberal reforms.

Capitalism in the MENA and Neoliberal Development
The main specificity of the MENA region is the concentration of energy resources, which until today generates the interest of the great world powers. Some have talked of an “oil curse." The oil and gas reserves of the Gulf monarchies are among the highest in the world. There are various estimates on the matter – and the assessment of oil reserves is highly controversial – but a commonly cited figure is that the Gulf monarchies hold around 40-45% of all authenticated oil reserves and nearly 40% of global gas. It currently supplies nearly 20% of all the world's oil production.

Following the discovery of oil in the 1920s and 1930s in the Gulf countries, especially Saudi Arabia, Western powers saw the region as an asset to control. Since then, Western powers have had an essential and ongoing impact on the region's states and political economy. Between 1940 and 1967, American companies significantly extended their control of oil in the MENA region from 10% to almost 60%. The control of oil supplies is an important instrument to oppose any change of power, both economic and military, within the global economy. Moreover, from 1947-1948 until 1973, the countries of Western Europe and Japan (as well as the United States) experienced strong and continuous economic growth on a scale previously unknown: the "Glorious Thirty Years." The development of industrial society meant that oil became the strategic energy par excellence, the raw material without which the entire political and economic edifice of the developed countries was in danger of collapsing.

Since the 1980s, these states have adopted a neoliberal model focused on speculative investment in search of short-term profits in the unproductive sectors of the economy, especially in real estate, finance, and trade. Neoliberalism is a particular organization of capitalism to ensure the conditions for capitalist reproduction at a global scale and as part of a ruling class offensive, which ran through the recessions in the 1970s and 1980s and resulted in the restructuring and generation of new and expanded forms of capitalist accumulation. These features have progressively become regional following the crisis of the Arab nationalist regimes since the 1970s, which pushed them to abandon their previous social policies (such as domestic control of industry, support to education, subsidies for basic commodities, and state control of land and other resources) and increasingly operated a change in their foreign policies for two key reasons. First, they suffered defeat at the hands of Israel. Second, their state capitalist methods of development began to stagnate. As a result, they opted for a rapprochement with Western countries and their Gulf allies and adopted neoliberalism,

rolling back many of the social reforms that had won them popularity among workers and peasants. In turn, the regimes turned against the Palestinian national movement reaching an accommodation with Israel directly and indirectly. The more recent “normalization agreements" between various Arab states and Israel is also a way to foster the regional economic inclusion of Israel. The value of trade between the United Arab Emirates and Israel amounted to more than AED 3.5 billion (equivalent to nearly USD 952 million) until the end of September 2021, while in March 2021 Abu Dhabi had established a USD 10 billion fund to invest in strategic sectors in Israel, including energy, manufacturing, water, space, health care, agricultural technology, among other fields.

Neoliberalism as a Central Economic Policy​
At different paths, the privatization of public goods began in the MENA region with the neoliberal policies of the early 1990s — mainly in the industrial, real estate, and financial sectors. International Financial Institutions (IFIs) also started to promote public-private partnerships (PPPs) to the regional states, in the same way it did around the world as a new tool for privatization and the management of public goods by private entities.

States have also opened their economies to foreign direct investment, developing the export and service sector – especially tourism. At the same time, the states have kept taxes on both foreign and domestic companies low and guaranteed them cheap labor. The regimes' repressive apparatuses have served as “security agents" protecting the interests of these companies and cracking down on workers, peasants, and the poor.

The states have cut public services, removed subsidies to basic necessities like food, and privatized state industry often selling them to businessmen connected to the centers of political power. As a result, all the region's countries are characterized by extreme class inequality, high rates of poverty, high informality (which strips away protection rights granted by labor, even limited) and high unemployment, especially among youth. Those with education and valued skills leave their countries for opportunities elsewhere. And, in the case of the Gulf monarchies, their economies rely on temporary migrant workers who make up the majority of the laboring population and are deprived of political, labor, and civil rights. The proportion of migrant workers in Gulf monarchies is among the highest in the world with an average of 70.4 percent, ranging from 56 to 93 percent for individual states.

The process of neoliberal reforms accompanied by privatization and austerity measures did not mean a retreat of the state but rather its redeployment in ways that modify authoritarian rule. These neoliberal policies actually led to a new phase of “upgraded authoritarianism" although they did not lead to a process of enhancing an “independent middle class or capitalists'' who were supposed to challenge dictatorships and lead to democracy. This was a discou​rsepromoted by academic literature throughout the 1990s onward, by IFIs and some Western states, especially US governments that combined the expansion of neoliberal policies with the so-called “democracy" promotion agenda in the Global South. The new “civil society," which was supposed to encourage democracy, was composed of associations and so-called Non- Governmental Organizations (NGOs) encouraged from above, which constituted a new elite linked to business networks who were close to the regime. This emergence of the NGOs was,

and continues to be, a part of the process of privatizing regulatory functions and social services. At the same time, neoliberal policies and deepening processes of privatization created new monopolies in the hands of relatives and ruling class cronies, as mentioned earlier, strengthening the patrimonial nature of numerous regional states with the increasing weight of crony capitalists within the centers of powers. "Patrimonial '' here is used in the traditional Weberian definition. In other words, it is an absolute autocratic and hereditary power, which can function through a collegial environment (parents and friends) as well as through ownership of the state. The armed forces are dominated by a praetorian guard (a force whose allegiance goes to the rulers, not to the state), as is the case for economic means and the levers of administration, as explained by Professor Gilbert Achcar.1 He adds that in this type of regime, a crony capitalism develops, dominated by a state bourgeoisie. In other words, the members and people close to the ruling families often exploit their dominant position guaranteed by the political power to amass considerable fortunes. The rentier nature of the economy strengthens the patrimonial nature of the state as well. The centers of power (political, military, and economic) within the Syrian regime are concentrated in one family and its clique, al-Assad, similar to Libya under Qaddhafi or the Gulf Monarchies. This drives the regime to use all the violence at its disposal to protect its rule. Not all the political systems of the region are patrimonial; for example, in certain cases, the main center of power is concentrated in the highest level of the military institution (Algeria, Egypt, and Sudan), while others can be characterized as sectarian parliamentary systems (Iraq and Lebanon), in which sectarian neoliberal elites rule the country.

The outbreak of the popular uprisings in the MENA region in 2011 was therefore not just the result of the global economic crisis of 2008. Certainly, the Great Recession helped trigger them, but the region has deeper structural problems compared to the rest of the world system. This mode of capitalist production is focused on extracting oil and natural gas, underdeveloping productive sectors, overdeveloping services, and fuelling various forms of speculative investment especially in real estate.

Crisis as New Opportunities for Neoliberal Reforms
Over the past several decades in the region, crises, whether political, economic, or even wars, have often been seized in the region as opportunities to pursue or deepen processes of economic liberalization, often with the assistance of IFIs. As argued by professor Adam Hanieh, these policies should not be considered “managed and technocratic," but as attempts “to restructure and push forward change in ways that were previously foreclosed and significantly extend the reach of the market in a range of economic sectors that have hitherto been largely state dominated."2​

A clear example is the activity of the European Bank for Reconstruction and Development (EBRD) after the beginning of the Arab popular uprisings in 2011. One of the EBRD's main objectives has been the promotion of infrastructure PPPs. These models aim in particular to foster private management of public infrastructure (especially in the fields of telecommunications, electricity, and health). IFIs such as the EBRD have very often insisted on the necessity of privatizing such infrastructure as a condition for the provision of loans.

Several Middle Eastern countries have indeed adopted PPP legislation in order to double down on privatization of public services and state infrastructure. In Saudi Arabia, PPPs have become a fundamental element in the economic and political strategy of Vision 2030 promoted by Prince Mohammad Bin Salman. The 2020 National Transformation Program, presented after the 2030 Vision, details the economic policies of the new Saudi leadership team and places private capital at the center of the future Saudi economy. The Saudi government has stated its plans to organize PPPs for many government services, including sectors such as education, housing, and health. The Financial Times described the plans as “Saudi Thatcherism."

In similar fashion, the Syrian regime accelerated its neoliberal policies following the 2011 uprising and the increasing militarization of the conflict from 2012 onwards. It passed a PPPlaw in January 2016, six years after the law had first been drafted. The legislation authorizes the private sector to manage and develop state assets in all sectors of the economy, with the exception of oil. The “new economic strategy" known as the National Partnership, launched a month later in February 2016, cited the PPP law as a reference point.

Similarly, after the Port of Beirut explosion in August 2020, both French president Emmanuel Macron, who made a high-profile visit to Lebanon for a few hours two days after the tragedy, and the managing director of the IMF Kristalina Georgieva agreed to provide, in addition to the emergency assistance of €252.7 million to Lebanon, billions of dollars of financial support on the condition that Lebanon implements “institutional reforms." These “reforms" are based on the Paris conference held in April 2018, “Conférence économique pour le développement, par les réformes et avec les entreprises," known as “CEDRE," which pledged more than USD 11 billion in loans and grants to Lebanon. In return for these funds, the Lebanese government must commit to developing public-private partnerships, reducing debt levels, and imposing austerity measures. However, all these announcements did not materialize yet.

The COVID-19 pandemic was also used by some states to pursue particular austerity measures. The Saudi Kingdom, for instance, imposed cuts in subsidies, with the elimination of the cost-of-living allowance, and a sharp increase in VAT from 5 to 15 percent. Meanwhile, the kingdom's sovereign wealth fund has invested more than USD 8 billion since the start ofthe pandemic in behemoths of the global economy such as Boeing and Facebook.

These neoliberal policies further deepened social inequality. In 2020, in the MENA region, therichest 1 percent and richest 10 percent of the population took in, respectively, 30 percentand 64 percent of income, while the bottom 50 percent of the population only received 9.4percent. According to a report published in August 2020 by Oxfam, the total wealth of the region's 37 billionaires was equivalent to the poorest half of the adult population. Furthermore, between 2010 and 2019, the number of wealthy individuals with assets of USD 5 million or more in Egypt, Jordan, Lebanon, and Morocco increased by 24 percent, and their combined wealth increased by 13.27 percent, from USD 195.5 billion to USD 221.5 billion.

In the same report, it was estimated that the economic contraction caused by the pandemic and recession will throw an additional 45 million people into poverty throughout the region.

Conditions for refugees and migrant workers, which were already very difficult, have dramatically worsened and havebeen exacerbated by racist scapegoating.​

Many outlets and reports have focused on the continuous growing influence of crony- capitalists and the high levels of corruption in regional states to explain their economic shortcomings and / or crisis and uneven distribution of wealth. While more accountability and economic transparency is a necessity, it is firstly the failure of the economic structures and policies of the ruling classes to generate sustainable and long-term growth accompanied by low levels of public investment in productive sectors of the economy, which is at the root of the region's economic situation. In other words, regional economic development was, and still is in many ways, blocked by its mode of production: a speculative and commercial capitalism characterized by short term profit-seeking.​

  1. Achcar G. (2013), The People Want A Radical Exploration of the Arab Uprising, Berkeley,. CA: University of California Press,
  2. Hanieh, A. (2018). Money, Markets, and Monarchies: The Gulf Cooperation Council and the Political Economy of the Contemporary Middle East. Cambridge, UK, Cambridge University Press.

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