Throwing money at failing states isn’t working

Lapo Pistelli is Senior Vice President at Eni for strategic analysis and business development, and formerly Italy’s Deputy Minister of Foreign Affairs and International Cooperation

If we are to assess how Europe can direct its actions in the Middle East and North Africa, we first have to trace the current crisis back to the roots that caused such a spectacular regional upheaval – the so-called ‘Arab Spring’ and its consequences.

Just as now, the entire Middle East in 2010 was boiling, albeit more subtly. Deep internal rifts were shaking regional order at its foundation, and these cracks were primarily socio-economic. To put it simply, a tiny elite controlled the great majority of resources through autocratic institutions and repressive security forces, the ‘middle class’ was overwhelmingly poor, and more than 40% of Arabs lived either on the fringe or below the $2 poverty line.

Prior to the Arab Spring, the EU’s policy towards its southern neighbourhood was essentially twofold, focusing on the establishment of an effective trade cooperation framework and pushing for economic liberalisation. Regional autocrats were regularly reminded of the need for political reform, yet this was never put on top of the agenda. Between 1995-2010, the EU granted roughly €10bn to Tunisia, Egypt, Libya and Syria, first through the Euro-Mediterranean partnership, then within the EU Neighbourhood Policy (ENP) after 2004. But as it created a consistent trade flow between the two shores of the Mediterranean, the EU ultimately failed to stir widespread and sustainable economic growth in the south, and failed to promote the creation of a stable middle class with a network of small and medium-sized enterprises. On the contrary, the incomplete and rigid ‘liberalisation reforms’ put in place by the regimes of Egypt and Tunisia in the 1990s and 2000s ultimately boosted already severe social inequalities, as local elites greatly benefited, increasing either country’s dependence on EU economies. When the eurozone crisis hit us, it became the last straw breaking our southern partners’ backs.

An interesting piece of research from Princeton University on ‘What the Arab uprising protesters really wanted’ has pointed out that economic issues were more important than political freedoms for participants in both the Egyptian and Tunisian uprisings. Who took part in the popular protests was determined more by ‘how state policies impacted different social categories than individuals’ ideological orientations or ideals’. Of course, the current crisis in the region is far from being Europe’s fault, and is mostly an interplay of the internal structural weaknesses of local institutions and societies, and a lack of regional cooperation – replaced instead by aggressive foreign policies. Nonetheless, we in Europe are accountable for the failure of our engagement strategy towards the region. Five years on, it seems that the EU is still struggling to find a successful way to foster growth and stability south of the Mediterranean. Last November, the European Commission and its High Representative for Foreign Affairs Federica Mogherini outlined an updated version of the ENP emphasising the differentiation among recipient countries and the ‘more for more’ principle, aimed at nurturing the rule of law and democratic values in the region. But the focus is once again on ‘the development of free trade as the main instrument for stimulating economic growth and enhancing competitiveness’.

Leaving aside Egypt, where economic and political instability ultimately hindered political reforms, and Libya and Syria, where state institutions collapsed and civil war pushed millions of refugees north, we could focus on Tunisia, the country where everything started and where the EU has invested considerable economic and political capital.

In Tunisia, different political parties and movements have successfully implemented a peaceful and shared democratic political transition. The two coalition governments that have ruled in the aftermath of the revolution have also managed to achieve a certain degree of macroeconomic stability, cutting subsidies and reforming an oversized public sector. In addition, they also managed to take important steps in reforming the banking sector. Despite this, the country is in the midst of a profound economic crisis. Last year, Tunisian GDP grew by 0.5%, while the unemployment rate was around 15%, reaching 30% among youths. Besides the repercussions of the war in Libya, two long-standing structural deficiencies are putting the success of Tunisia’s revolution at stake.

First, a labour crisis caused by the blend of a highly-skilled youth with a huge informal sector and a strong trend of wage restraint. Second, the persistence of socio-economic inequality between the rich industrial coastal provinces and the unemployed depressed internal regions of the country.

The trouble with these two issues, and with the European response aimed at solving them, is that one of their main root causes lies in that very export-based economic model the Commission wants to strengthen with the ENP review. These problems cannot be fixed until Tunisia diversifies its economic production from an export-driven model, based on agricultural products, tourism and cheap labour services. Most importantly, its economy will remain weak unless the country eases its dependency on the European market. Instead of centring its actions on trade, which remains important, the EU should give priority to investments into local SMEs, enhancing and diversifying Tunisian industrial capacity – expanding it outside the coastal belt, where 80% of total production is currently happening.

The lesson we can draw from Tunisia, which is the regional best-case scenario, is that we must do more to readjust our policies towards our southern neighbours. We must shape a longer-term strategy that takes on the persistent, constitutional challenges of any country in the MENA region, ranging from economic flaws to social disparities and security instability, avoiding the short-sighted mistakes of the past. It should go without saying that we need to start thinking more as Europeans, and less as specific nationals. But it is also necessary for us to go beyond the immediate economic or political gain, eventually framing a policy with a comprehensive vision for our southern neighbourhood – something that not only Middle East and North African countries are in desperate need of, but Europe and the entire world too.