Arabs ponder freedom's link to prosperity

Any discussion about the Middle East's economic woes soon turns to the region's political paralysis.

Repression of political ideas, official corruption and Byzantine bureaucracies are cited by analysts along with tariff barriers, shallow capital markets and lack of financial transparency as reasons why Spain produces more in one year than the 22 nations of the Arab League put together.

Two hard-hitting reports, the latest released this week, warned Arab nations they must act to sweep aside these impediments to growth to meet the needs of their 280 million population - a figure set to double in about 30 years.

Nader Fergany, author of the Arab Human Development Report released in July by the United Nations, told Reuters that the consequences of inaction would be "nothing less than catastrophic, since there would be social conflict.

"Capitalism cannot survive without basic requirements which are efficiency, transparency and a state ensuring justice in distribution," Fergany said.

Without basic trust, people feel less committed to countries and less willing to invest their funds and efforts for the benefit of their native land.

Some analysts in the past have blamed the region's religious extremism on poverty.

But 15 of the 19 hijackers in the September 11 US attacks were Saudis from mainly middle class with access to education, travel and opportunity. This has strengthened the arm of those arguing that both economic and political reform must go hand on hand.

"Lack of economic and political opportunity, political repression, certainly don't help people to be better citizens, it makes it harder," a senior Western diplomat in the region said.

Two decades of economic stagnation are all the more alarming given the great potential for wealth creation in a region sitting on 65 per cent of the world's proven oil reserves and occupying a unique geo-political position between East and West.

The Arab World Competitiveness Report issued this week by the World Economic Forum (WEF) found that although billions had been spent in the Middle East, the poor quality and inefficiency of domestic investment had overwhelmed its ability to promote growth since the 1980s.

Even Saudi Arabia, the world's largest oil exporter and sitting on a quarter of the world's proven reserves, has seen annual per capita growth fall in the five years to 2000 as economic development has failed to keep pace with population growth.

"It shouldn't have come to this," the Western diplomat said of the area's lost opportunity to grow.

"This part of the world has gone back or stood still while everyone else has gone forward, that is why every year it looks worse and worse than other parts of the world."

Both the UN report and the WEF report held out little hope for improvement in the region's development without cutting corruption, empowering of women and giving the public better access to information and quality education.

Many of these problems are not peculiar to the Middle East, said Peter Cornelius, the WEF report's lead author and competitiveness expert.

"What makes the Middle East special is that economic growth has fallen over a longer period of time, it has been very sluggish in real terms, but has been falling in per capita terms, and that is quite unique," Cornelius said.

Some regional economists argue that the Middle East has faced particular problems that others have not, such as the 50-year old Israeli-Palestinian conflict and war in the Gulf, which have diverted a large chunk of resources.

Others argue that it is precisely these conflict that have been used as an excuse by Arab governments to ignore political and economic reform.

The UN report admits the Arab-Israeli conflict has been a burden to the region, but says "it provides both a cause and an excuse for distorting the development agenda, disrupting national priorities and retarding political development."