A little over one year ago, the world witnessed unprecedented events as political protests swept across the Middle East, taking down four long-standing autocrats and drastically changing the political landscape.
Given the extreme political, economic and social volatility, investors fled the region for much of 2011. In the long term, however, many countries in the Middle East should offer attractive investment opportunities because of extremely propitious demographic profiles.
The performance of stock markets shows investors are regaining confidence. However, private equity investments, which give a more meaningful indicator of long-term money, remain very depressed. The Arab Spring has been an important step toward political reform, but there is much further to go.
The Journey So Far
One year on, we can divide the Middle East into three groups. The first includes the vast majority of countries where there has been little to no change, with the incumbent regimes employing repression, financial inducements and limited concessions to stay in power. Saudi Arabia, the other Gulf States, Algeria, Morocco and Jordan are examples.
The second group contains those countries suffering violent instability and risk of civil war. This group consists of Syria and Yemen, two countries at important but uncertain junctures. In Syria, Bashar al-Assad remains in power, waging an increasingly violent war of attrition against fragmented Syrian opposition forces. Kofi Annan’s ceasefire has collapsed, and local human rights groups estimate the death toll at more than 20,000.
In Yemen, Ali Abdullah Saleh stepped down after 30 years in power, but the political landscape is extremely fragile. A failure to mediate between the country’s diverse groups could return Yemen to the brink of civil war.
Until recently, Libya was also in group two. However, the country’s first post-Gadhafi election ran surprisingly smoothly, with decent participation, few irregularities and the largest share of votes won by a broadly secular party. Yet forming a government will require complex coalition-building, and even the winning party consists of almost 60 organizations with diverse interests. Libya has decent prospects as an oil-rich state with a relatively small, well-educated population, but it could yet stagnate due to weak institutions and internal fragmentation.