Over the past few years, the Sultanate of Oman has maintained an increasing growth rate and registered a mounting budget deficit against a backdrop of rising oil prices. As a middle-income economy, Oman relies heavily on energy revenues, which constitute as much as 45% of government revenues and around 50% of the country’s gross domestic product (GDP).

In turn, unemployment is considered as a significant problem in a country of 3 million inhabitants. In fact, unemployment in Oman has been�� at 15% among nationals��and reached as much as 25% among young people aged between 18 and 29 years old.��

Against this background, and in an attempt to reduce the rather high dependency on energy revenues, an economic strategy focused on the development of the private sector has been articulated in the past few years.

Oman has thus developed a vibrant private sector that operates in large part in tourism, retail, agriculture and textile. Strong and diversified, Oman’s private sector attracts more and more entrepreneurs and seeks to increase foreign investment as well. Moreover, it also aims to reduce unemployment levels, particularly among Omani youth.

51�Թ�’s��Najlaa Habriri speaks to Omani entrepreneur��. Al-Khonji has founded several businesses in Oman in the past and is currently the CEO of Genesis International. He is also a board member of several Omani organizations.

Habriri and al-Khonji talk about the latter’s personal and professional insights on the business environment in Oman and the attractiveness of entrepreneurship to Omani youth.

Najlaa Habriri: The economy of states in the Middle East and North Africa, especially in the Gulf, is mostly characterized as being overly reliant on natural resource exports. Oil and gas have brought a lot of wealth to the region, but arguably inequality as well. How do you see the issue of natural resources and their impact on the region’s economy?

Qais al-Khonji:��As an open market, the Gulf Cooperation Council (GCC) offers a range of advantages and disadvantages. I personally believe there are inequalities within the GCC. Some people out there manage to make fortunes, whereas others fail but keep on trying. There is a third category of people who do not engage with entrepreneurship and prefer enjoying a fixed sustainable income.

Therefore, I believe that our governments should invest in education. We need “feeder brains” that can create a difference in our societies, whether in the GCC member states or in the wider Arab world.

In my humble opinion, I believe that two sets of knowledge are needed in our societies. We need more scientists and more entrepreneurs. People who make ideas and people who implement these ideas on the ground.

It is, therefore, necessary to invest in brains by offering the best quality education to young people in the region. That will allow these “brains” to make good use of our natural resources here in Oman and in the region.

Habriri: You are an entrepreneur in the Gulf yourself. What do you see as some of the best opportunities in today’s business environment and some of the most difficult obstacles? What needs to be done to tackle those obstacles?

Al-Khonji:��I have personally faced various difficulties and have made so many mistakes before I could achieve success. I believe that all business endeavors should be this way.

As I stated above, the best combination to start a project, in my opinion, is if an engineer shakes hands with a businessman, provided that both share a strong passion toward the project.

As for the obstacles, there are many. I call the Omani market the market of the two “S-S” — that is the market of the “too slow and the too small.” It is slow in executing any given business order, which results in higher execution costs and shortens the project budget cycle.

The market is also small in that it has a small population, and an even smaller active population. It is difficult to make a business idea flourish in a city like Muscat, where there are only 900,000 citizens. Only unique and innovative ideas would be able to “survive” in similar environments.

Based on my experience and the current business environment in the Omani market, I would advise the youth to invest in services rather than goods.

Habriri: Since you are from Oman and have started several businesses there, I would like to talk about the country. How would you characterize Oman’s business environment? And, how do you see Oman’s potential for economic and business development?

Al-Khonji:��As I said earlier, the Omani market is the market of the two “S-S.” Although it is quite a challenge, business indicators in the country seem to be heading toward sustained growth in the long-term. Our tourism sector is growing rapidly and new economic projects burgeon, making way for new opportunities.

Some of these include an upcoming railway project and the construction of the new airport. There are also a number of campaigns, some of which I am leading, to encourage entrepreneurship within Omani youth.

I consider entrepreneurship as the backbone of any given economy as well as its future. The government provides an important array of entrepreneurship opportunities by initiating big projects such as the ones cited above.

Habriri: Oman’s energy sector has strong ties with several Asian countries, especially China, exporting large amounts of oil and gas to the region. What is your view of the country’s economic ties and strategy?

Al-Khonji:��Oman has strong economic ties with Far-Eastern countries. The strategic vision of Oman has always been directed toward jobs creation. And this is clear from the country’s economic strategy over the past few years, which was based on responding to the steady growth of population with income-generating projects.

Habriri: What are some of the lessons you have learned from starting your own businesses?

Al-Khonji:��My entrepreneurial journey has taught me so much and still is. The beauty of starting a business is that one can learn from everyday changes. It can be a long journey, but the most important step is the first one.

My advice would be to take that first step, not to fear, learn, aim big and do not hesitate if one is convinced. One should never have any regrets as mistakes are part of the journey to success.

Habriri: As there are a non-negligible number of Western and multinational companies operating in the region, could you comment on their impact, potential and obstacles?

Al-Khonji:��There are indeed a number of multinational companies and foreign individuals doing business in Oman. These individuals bring their experiences with them and invest in profitable projects in the country.

I believe the most important component in a business success is the “know-how.” We usually associate this know-how with foreigners. That is why I couldn’t insist enough on the fact that quality education is fundamental to boost a country’s economic performance.

Further, multinational companies allow the national economy to maintain a steady growth level as they create jobs for the locals and transmit technical expertise to Omani citizens.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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The wave of popular revolts that sparked in the Middle East and North Africa (MENA) in 2011 had different repercussions on each country, depending on the prevalent economic, political and social structures. Indeed, some of these protests toppled regimes, as was the case in Tunisia, Egypt and Libya, while others were successfully terminated either by the means of oppression or pseudo-political reforms by established ruling institutions like in Morocco and Algeria.

The motors of these protests have been extensively covered for the wide region of the Middle East. The general rhetoric in this sense assimilates social unrest with the deteriorated economic conditions of most of the population, coupled with the����as the working age segment of society grows faster in the Middle East than anywhere else in the world.

A closer look into the main slogans chanted by protesters, however, would reveal that there is much more to the social unrest in the MENA region than mere economic factors, and that the political economy approach offers a more comprehensive analysis.

The aim of the present article is to explore some of the political economy motors of the protests, and assess the evolution of the North African institutional environment and its impact on regional economic performance.

��were repeatedly identified as the main “fuel” of the demonstrations. The issue that comes to mind here is whether these popular revolts were capable of altering the existing social contracts and economic structures, and replace them with viable economic and political models.

While events are still unraveling and social unrest is still ongoing in the region, it would be ill-advised to attempt to predict the future. What would be helpful, however, is to examine the rooted political economy structures of countries in the region, in order to understand the implications of the current policies on macro-economic outlook and political stability. As experts have extensively covered the wider Middle East, this article focuses on North African countries.

Underlying Political Economy Structures

Analysts have listed several political economy factors that led to the outburst of regime-changing revolts in Tunisia, Egypt, and Libya and are threatening the sustainability of existing regimes in Morocco and Algeria. These factors include a demographic transition coupled with a significant lack of employment opportunities, rooted institutional deficits, the relative expansion of the middle-class, and of private entrepreneurship faced with an ever-growing monopoly of the state over the economic sector.

That said, and despite acknowledging that no unique reason is sufficient to explain the social unrest that sparked in 2011 and is still ongoing in the region,����tend to single out inequality and poverty as the main explanatory factors and ignore or marginalize the political charge of the revolts.

��ranks Libya in position 64, Algeria in 93, followed closely by Tunisia in 94, Egypt in 112, and Morocco in 130. These ranks have barely changed since the mid-2000s.

Although some indicators have improved over the last few decades, including health, life expectancy and GDP per capita growth, other factors remain far below the average of medium human development countries. Official figures also reveal significant disparities between the North African countries as factors like education, income per capita, and life expectancy vary from one neighbor to the other.

Education is a case in point with the����being 51.2% in Egypt, 49.6% in Libya, followed by Tunisia and Algeria with 37% and 24.1% respectively, and finally Morocco with only 28%.

There is room to argue that it is very unlikely that poverty and inequality are the main motors of the social unrest in North Africa. Although it is undeniable that the region suffers from chronic poverty and inequality, these remain less flagrant than in other regions of the world.

The universal measure of inequality, the��, “measures the extent to which the distribution of income or consumption expenditure among individuals or households within an economy deviates from a perfectly equal distribution.” It reveals that emerging countries like China and Brazil suffer from more inequality than North African countries.

Further, these theories do not explain the timing of the protests and why the uprisings happened. On many occasions over the past decades,����but did not deliver. Protesting in some North African countries can be part of the culture, as almost every day of the week is marked by some kind of popular manifestation of varying sizes and for varying reasons (for example, unemployment, human rights violations and bread riots).

As argued by��, political transitions do not occur according to calculated agendas and do not adhere to a “one-fits-all” model. Where the cost of revolting is lower than that of the existing political economic structure, individuals would attempt to alter the present order.

Therefore, North African countries, characterized by a combination of high unemployment, a growing young population, and increasing inequality are more prone to instability and revolt movements.����argues, with regards to the Arab revolts: “The cost of autocracy simply no longer compensated for the meager economic benefits delivered by North African governments.”

A Significant Lack in Structural And Institutional Reforms

Over the past few decades, North African countries have engaged in a number of economic and financial reforms and fully integrated into the world economy, although at varying levels. ��have prioritized macro-economic stability and attempted to subscribe to international financial standards, through measures ranging from liberalization of exchange rates, tax reforms and privatization, among others.

The levels of implementation of these reforms are country-dependent. Nevertheless, the region managed to maintain relatively high economic growth rates during the recent international financial crisis and developed resilience to external shocks,��although at the of small- and medium-size enterprises, informal sector workers and households��The banking systems of Egypt, Morocco and Tunisia, in particular, have also subscribed to the Basel II banking regulation and supervision reforms which, in theory, gives them the stamp of “good students” in the international financial system.

The picture painted by the various economic and financial reforms implemented in the region, however, ignores rooted institutional deficiencies. These are crucial to fully understand the social unrest that has swept the region.

Rooted Institutional Deficiencies

A brief overview of the institutional quality of each of the studied countries provides a better insight into the impact of the implemented financial and economic reforms.��The Worldwide Governance Indicators�� by the World Bank Development Research Group aim at reporting on the institutional health within individual countries through six main aggregate governance indicators, including voice and accountability, political stability and absence of violence.

In 2011, Egypt scored the lowest among its North African neighbors in terms of “control of corruption.” All countries score worryingly low levels on “voice and accountability,” with Egypt being rated the worst, followed by Morocco and Tunisia. The rule of law indicator is not sufficiently developed either, with all North African countries flirting with the 50th percentile rank in 2011.

The low level of participation, transparency, and information-sharing�� by the institutional infrastructure in North African countries provide fertile grounds for pressure and lobbying from powerful interest groups pursuing personal interests.

Vicious Circles

The absence of checks and balances facilitated the establishment of what����called “vicious circles.” These circles are based on extractive institutions controlled by a small elite that pursue their vested private interests at the expense of the wider population.

These circles are recurrent in North Africa and benefited the Ben Ali family network, Mubarak’s business interests, and Qaddafi’s tribal setting. Many argue that similar networks are perpetuated in Algeria through President Abdelaziz Bouteflika’s family ties and network of generals and politically connected businessmen; in Egypt through rooted military control of strategic industrial sectors ranging from the construction and steel industry to tourism and agriculture; and in Morocco by prioritization of the palace’s economic and commercial interests and ambitions.

It is worth noting that if the political structure of North African countries was characterized by strong and efficient checks and balances, politicians and policy-makers would have less freedom to influence the countries’ political economy according to their own interests. Individual economic and social agents would then have less leeway to behave in a manner serving their private interest by exercising disproportionate lobbying influence on politicians.

In the same fashion,��the existence of a strong legal and judicial ��that enforces property rights would allow the efficient supervision of international, economic, and financial standards and provide private market participants with the ability to monitor and control economic activities. Levels of corruption would also be brought down and the economic and banking sectors’ performance would improve.

Going beyond mere economic factors, the lack of transparency, symmetrical access to information and practical accountability to the public — as exclusive networks hold power over the political economy structures — represent a significant stumbling block to political transition and make North African economies more prone to economic and social instability.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Background

The Middle East and North Africa (MENA) provides a highly diverse picture of economic structures and characteristics. Its far from uniform regional economic structure can be traced back to before the establishment of the nation-state in the region.

The MENA region has witnessed major economic transformations since the 19^th century. While colonial regimes unarguably incorporated many countries in the region to the world capitalist system, whether it was through direct or indirect mandates, they also established a de facto dependence relationship between Arab colonies and their European patrons through inequitable terms of trade. Further, the colonial ties did not allow much margin for economic innovation and diversification, as the majority of Arab economies remained dependent on low-value exports and low-income generating agrarian activities.

The post-independence era witnessed the adoption of the Import Substitution Industrialization strategy (ISI). The adopted ISI model entailed protecting the domestic market from external competition through tariffs and barriers and diverting natural resources, including oil, gas, and phosphates to industry.

This strategy seemed to be highly productive in the 1970s, particularly in oil exporting countries, and led many experts to talk about a “regional economic boom.” However, this prosperity proved to be unsustainable with the volatility of oil prices due to the two oil embargos in the 1970s and the plummeting of oil rents in 1986.

The regional economic recessions that followed each of these episodes were exacerbated by the social benefits reaped in the earlier boom period, such as increased life expectancy and fertility and decreased infant mortality.

Detaining  of the world’s proved liquid oil reserves, the Middle East has heavily relied on energy exports to sustain its economic development to the detriment of other industries. The dependence on the energy industry has also allowed states to maintain tight control over national resources, which has led to the institutionalization of corruption and inequality.

Regional economic integration remains at a low level. Except for the Gulf Cooperation Council (GCC) which brought together the Oil Gulf monarchies, there is a lack of regional trading blocs as tariffs remain quite high. The lack of trade between North African countries is a case in point, as the low level of integration , according to the African Development Bank. 

Why is the Economy Relevant?

Many would argue that one of the main motors of social and political unrest in the MENA region stemmed from the deteriorating economic conditions and inequality from which the young population suffered, in particular. The same factor has also been used to explain why large social mobilizations succeeded in some Arab countries and not in others.

In addition to the , many identify the rapid growth of an increasingly young labor force as today’s main economic challenge facing the region. With per capital income in 2000 being similar to the 1980s and 1990s, Arab countries in the Middle East are characterized by stagnating living standards and high population growth.

The three most populous countries in the MENA region, for instance, have a very high percentage of young people with Egypt’s, Algeria’s, and Morocco’s populations standing at median ages of 20, 20 and 21 respectively. Based on demographic growth expectations, commentators have argued the region as a whole will witness a continuing increase in young labor force of  for the next decades. The Arab League, based on the , expects unemployment to increase  people over the same period. 

Further,  the poor economic performance in the region makes the Middle East and North Africa a fertile ground for religious extremism and the development of terrorist networks. That is one of the key factors which discourages both domestic and foreign investments and increases capital flight due to the increasing risk premium.

Hence, the Middle East and North Africa is a region where political regimes and economic performance are intertwined par excellence. Indeed, the soaring lack of political dynamism, particularly in a context of social change, fuels popular discontent and raises the level of political uncertainty. The increased possibility of turmoil and regime change are clear impediments to investment and economic growth.

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