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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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NTRODUCTION
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