How the trade vs. aid debate shows the different trajectories of Egypt and Tunisia.
- By Caroline Freund<p> Caroline Freund is a senior fellow at the Peterson Institute for International Economics, and a former chief economist for the Middle East and North Africa at the World Bank. </p>
Last week, something rare and heartening happened in the Middle East: A peaceful transition of power. Tunisia’s Islamist al-Nahda party resigned following parliament’s approval of the country’s new constitution, handing authority to a technocratic government that will pave the way for elections later this year.
Meanwhile, the news out of Egypt could not be more different. Army chief Abdel Fattah al-Sisi was promoted to field marshal, and the military leadership endorsed his run for the presidency — steps widely seen as a prelude to Sisi assuming the country’s top office.
While the protesters who took to the streets of Tunis and Cairo in 2011 appeared to be inspired by similar aspirations for democracy and social justice, it seems clear that the two countries’ political fates are poised to diverge. The past experiences of countries that have attempted to make the difficult transition to democracy explains why this may have happened, and offers some guidelines about what factors will likely determine Tunisia’s future success or failure.
History tells us that an initial move toward democracy does not guarantee success. Some 90 countries have attempted democratic transitions in the last half century. Of these, 46 percent transitioned to democracy within a few years, 39 percent regressed to autocracy after a short-lived experiment with democracy or achieved only minimal change, and 15 percent moved gradually to democracy.
While each transition is unique, examining the 90 episodes offers some insights into whether today’s transitioning countries in the Middle East are likely to complete the process of democratization. Research shows that low per capita income, a history of military control, gender discrimination, and an abundance of natural resources all significantly hinder democratic transition. Interestingly, neither macroeconomic conditions nor international assistance significantly affect the likelihood of achieving democracy.
Judged by these criteria, it’s clear that Tunisia had a number of advantages from the onset. Going into the revolution, Tunisia’s per capita income stood at $8,800 — relatively high compared to $6,300 in Egypt. Tunisia’s military had been sidelined by the country’s last two presidents, as they sought to protect their own power. Tunisia granted the most equal rights for women in the Middle East, with a greater share of the female population enrolled in primary and secondary school than of the male population.
The economic conditions in both countries have deteriorated since their uprisings three years ago. Gross domestic product (GDP) growth dropped by more than 3 percentage points in both cases and unemployment increased from already high levels, pushing thousands into poverty.
Egypt and Tunisia’s leaders handled these economic challenges, as well as serious political obstacles, in starkly different ways — as the two countries’ dissimilar initial conditions would have predicted. When massive anti-government protests seized Egypt, the military stepped in. After the high-profile assassination of two secular leaders in Tunisia, the Islamists stepped down.
The relative success of Tunisia’s transition, and Egypt’s high-profile failure, show the limits of foreign aid. Over the past three years, Tunisia has attracted limited development assistance. Foreign cash, meanwhile, has poured into Egypt: Qatar, Turkey, and Libya pledged $12 billion when Morsi was in power, only to be replaced by similar funds from Saudi Arabia, Kuwait, and the United Arab Emirates after the military took over. Throughout the period, the United States has continued its assistance to Egypt of more than $1 billion per year.
If access to finance has done little to ease political transitions, experience suggests another way in which outsiders can offer help: History suggests that trade is more important than aid.
Countries with economies integrated into regional organizations have generally had an easier time with their political transition. Countries anchored by E.U. accession, such as Poland or the Czech Republic, used it to lock in political and economic reforms. In Turkey, even the potential of E.U. accession promoted market reforms and helped to restrain the military’s political influence. Mexico’s democratic transition was completed in the years following the 1993 North American Free Trade Agreement, while the Colombia-United States free trade agreement only opened markets after workers’ rights in Colombia were protected.
Deeper economic integration is more effective in encouraging political and economic reforms because it brings new business opportunities and hence better jobs, expanding the constituency in favor of reform. While aid can support reform, it is also subject to capture or waste, especially when institutions are weak. In addition, countries offering market access and investment have more incentive to monitor and reward progress than international lenders.
The fate of Tunisia’s democratic transition is not only vital for its 10 million citizens, it could have ripple effects across the Middle East. Research also shows that successful democratic transition offers a positive spillover to the region: The "third wave" of democratization, for example, spread first through southern Europe in the 1970s, then Latin America in the mid-1980s, and Eastern Europe starting in 1989. Just as protests spread from Tunisia to Egypt, Libya to Syria, and from Yemen to Bahrain, democratization may as well. One success in a region increases the likelihood that others in the region will ultimately achieve democracy as well.
While Tunisia’s continued success rests primarily with the Tunisians and their leaders, outsiders can help. Three-quarters of Tunisia’s exports go to the E.U., and the country is also strongly tied to Europe through investment and remittances. History shows that deeper integration — ideally with a potential (even distant) for E.U. accession — would be an unrivaled anchor for reform. Aid and technical assistance should also be available to support reform, but they are less likely to stimulate the type of economic transformation that can tip the political balance in any major way.
Among the many the challenges in the Middle East and North Africa, supporting Tunisia should be at the top of the list. Offering enhanced trade and investment treaties is the best way for the world to help it build on its recent successes.