The Middle East – party like it’s 1989?

On December 17th, 2010, a young fruit vendor with a college degree protested against his country’s authoritarian and corrupt government by setting his body on fire in the town square of Sidi Bouzid, an otherwise unremarkable city in south-central Tunisia.

Two months later Muhammed Bouazizi’s (may he rest in peace) name appears destined for the history books. His self-immolation triggered a series of ever-larger protests that brought about the ouster of Tunisia’s long-time dictatorship in a few short weeks. Amazingly, these events inspired Egyptians to rise up and do the same – by the middle of February, Hosni Mubarak had been forced into early retirement and the military had begun talks with opposition groups to establish a new, democratic government.

Now, large-scale protests are taking place in Algeria, Bahrain, Iran, Libya, and Morocco. In each country the governments have sought to quell the protests with violence.

Regardless of what happens in these other countries, 2011 is likely to be remembered as a momentous year in modern Middle Eastern history. In particular, the revolution in Egypt – the Arab world’s largest country – signals a new direction for the region.

This is important. Since the end of the cold war, countries have prospered across Asia, Eastern Europe, and Latin America as their governments have become increasingly democratic, transparent, and competent. These changes have produced dramatic changes in living standards in countries as diverse as Chile, Estonia, India, and Taiwan.

Until now, the Middle East has not been a part of this story. One half of the region (the Gulf states, Iran, Libya) have used massive oil and gas revenues to bribe their citizens with economic security in the absence of political or personal freedoms. The other half (Algeria, Egypt, Jordan, Morocco, Yemen) have simply used force to maintain power. In both halves, the same faces or families have been in power for multiple generations.

I’ll bet the half of oil-rich countries cling to power. Their governments are too rich and capable of bribing too many citizens with public jobs and social welfare checks.

But change will happen in much of the rest of the region. Maybe not this year, but probably sooner than later. The economic records of the governments of Algeria, Morocco, Syria, and Yemen, in particular, are terrible. Polls in the region are non-existent, but I can’t imagine any of these leaders enjoying more popularity than did Mubarak.

So what is the business angle? Well, I believe these changes will force multinational corporations to begin to rethink their worldview toward the Middle East. Take Egypt – with 80 million people its GDP is still less than half that of tiny Belgium. I’m willing to bet a free Egypt will look a lot like its larger Muslim neighbor, Indonesia – chaotic yet dynamic, bureaucratic yet full of entrepreneurial, hard-working small-businesses. With its Mediterranean geography, Egypt is an ideal low-wage supplier to European markets.  

What do you think? Will we see more revolutions? Will the new democratic regimes look like those of Indonesia or Turkey? Or Iraq? Or will we see new dictators?

Written by David Gates for Emerging Markets Blog

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