Earlier this week, leaders from the Middle East and North Africa (MENA) region gathered in Riyadh for the third annual Arab Economic and Social Development Summit. A main topic at the summit was the perennial issue of lack of economic integration among Arab countries. Egyptian president Mohammed Morsi, facing his own economic Armageddon at home, was a vocal cheerleader for greater regional cooperation, declaring, “Let us not dwell on the weakness of Arab trade and commerce. What is necessary is common political will and a shared vision to set a timely agenda for the implementation of a common Arab market.” Nabil Elaraby, secretary general of the Arab League, confirmed the league’s commitment to a “free-trade area” and said that the leaders would work to “achieve the Arab customs union fully by 2015.”
The potential for increased economic regional integration is clear: as of 2010, the World Bank reported that most Arab countries generate less than 10 percent of their total trade within the region; for countries in the Maghreb, “intra-regional non-oil merchandise trade” falls below 5 percent. In 2011, the African Development Bank noted that regional exports in North Africa made up only 3 percent of North Africa’s trade. Compare this with around 12 percent for sub-Saharan Africa, and 48 percent for developing Asia.
The past two decades, however, have seen numerous efforts toward greater economic integration in the MENA region go nowhere. Initiatives from the Pan Arab Free Trade Area to the Arab Maghreb Union have disappointed (or downright failed), largely due to deep political and economic disagreements–such as the conflict between Morocco and Algeria over Western Sahara. Indeed, the level of intra-regional trade in the Maghreb is among the lowest in the world. The hope expressed at the Arab Economic Summit is that the emergence of new political systems in the region–combined with the urgency of persistently high unemployment—will finally allow a breakthrough in expanding intra-regional trade.
While visions of greater economic cooperation hold some longer-term potential for the region, the hallway talk at the Arab Economic Summit was dominated by concerns about Egypt’s impending financial meltdown. With declining foreign currency reserves, the country faces a balance of payments crisis and is experiencing a “managed” currency devaluation.
A $4.8 billion IMF loan, under discussion since the summer of 2011, will not only provide important financial ballast, but will also unlock other critical funding for Egypt. Also on deck is $6.5 billion in loans and grants from the European Union. The Egyptian government has approached the IMF reluctantly, well aware that loan conditionality will impose unpopular budgetary cuts, but given its financial constraints, it has had little choice but to proceed. The IMF loan appeared to be a done deal in December, but then Egypt (with some nudging from Washington) suspended talks during the uproar over the constitution. The loan now again appears imminent. In the meantime, large cash injections from Qatar have kept Egypt afloat.
In a scramble to raise money, some in Egypt are betting that issuing debt through sharia-compliant bonds—or sukuk—will prove a salvation. Last weekend, Finance Minister El Morsi El Sayed Hegazy raised eyebrows by announcing that Islamic bonds could raise $10 billion for the Egyptian government. While the controversial sukuk law was being drafted, religious scholars associated with Al-Azhar expressed significant concerns about whether the bonds would be truly compliant with sharia. Secular critics also denounced the sukuk law as a first move to “Islamize” the economy. Others criticized the sukuk bonds on economic grounds, noting that these bonds will be issued at rates more expensive than the terms offered by the IMF. The press fanned fears that the country’s strategic assets, like the Suez Canal, would have to be used as collateral to back the Islamic bonds. Despite such criticisms, the government approved the draft law last week, and we’ll know soon enough whether “Islam is the solution” for the Egypt’s currency woes.