With the prominent exception of Israel and Turkey, Middle East economies performed poorly in the last decade, with most countries experiencing declining income per person. The Economic Research Forum for the Arab Countries, Iran, and Turkey (ERF), which is closely connected to the World Bank, sponsored a 1995 conference to discuss the prospects for the next decade. Prospects examines overall themes about the region, while Economic Challenges analyzes the outlook for individual countries. In fact-filled articles, well designed for the general reader, the authors set out a pessimistic perspective.
Prospects focuses on three sets of problems. (1) Relations between the state and the business community: Middle East businessmen have become so used to seeking corruption and handouts from the government that the authors are not very optimistic about growth prospects. (2) Dependence on environmentally dubious development: oil income has encouraged natural resource depletion and reliance on pollution-intensive industries. (3) Difficulty taking advantage of opportunities: trade liberalization agreed upon in the late 1980s (the Uruguay Round) essentially reduced subsidies to agriculture and allowed more textile imports to the advanced economies. These steps benefit developing countries that produce food and garments (giving better access to markets without having to compete against subsidized producers from developed countries) but hurt the Middle East. As a food importing region, it will pay higher prices for food imports, while the region lacks a garment industry.
Economic Challenges analyzes the outlook for Turkey, Iran and most Arab economies (though why Iraq, Libya, Algeria, and Yemen should be absent is something of a mystery). It finds Morocco and Tunisia the most advanced reformers in the Middle East, and the countries with the best outlook. The Gulf states remain dependent on oil income with little likelihood of diversification. For Egypt, Turkey, and Iran, the three big economies, progress depends primarily on government policies. Turkey has come far in opening up to the world economy, with spectacular gains in productivity as firms struggle to match world standards, but has far to go in reining in the losses of state enterprises. Egypt has the reverse problem: it has done much to improve the performance of the state-owned enterprises (through a combination of privatization and tighter controls over those remaining under the state), but it has far to go in improving productivity through labor reforms and encouraging competition. Iran has made little progress either in controlling state enterprises or in improving productivity through opening up to the world economy.
