Wednesday, Jan 19, 2011
Arab governments have launched a wave of financial handouts since the start of the Tunisia crisis, in what analysts see as an effort to pre-empt opposition from restive publics. States across the region have announced a series of extra subsidies and tax breaks both before and after last week's departure of President Zein al-Abidine Ben Ali.
The rash of perks is viewed as a sign of concern among Middle Eastern autocrats about the potential for Tunisia's landmark uprising to embolden the peoples of other countries. Hisham Kassem, an Egyptian publisher and commentator, says repressive regimes, long dependent on pacifying their publics with largesse, were injecting "a big dose of the drug". "There is serious concern in countries with similar circumstances [to Tunisia]," says Mr Kassem. "The measures we have seen are buying time."
Yemen said on Tuesday that it was slashing taxes on businesses and individuals, while Jordan last week cut duties on petrol, kerosene and diesel. Libya has announced measures to help reduce the impact of rising food prices, while Egypt has signalled that it might increase subsidies to combat surging wheat, sugar and vegetable costs. The moves have focused attention on the precarious dependence of governments across the Middle East on handouts, either to try to quell public support for existing opposition or prevent the emergence of campaigns for greater political participation.
Analysts are questioning the durability of this approach, particularly in countries that have large populations and no, or relatively modest, revenues from oil. Sultan Al Qassemi, a prominent Emirati commentator, says: "As populations increase, many governments won't be able to subsidise all these goods. There will obviously be a tipping point when the subsidies cannot continue, as there is a difference between what the governments want to do, and what they can do." This is not the first time living costs have triggered demonstrations in the Arab world that have either promised or precipitated political change.
Tunisia, Egypt, Morocco, Algeria and Jordan - exactly the countries most under scrutiny now - all saw protest and sometimes riots in the 1970s and 1980s over food prices, particularly for bread.
The Tunisian uprising against Mr Ben Ali this month - and more modest demonstrations elsewhere in the Arab world - have highlighted the important role that rising living costs continue to play in bringing people on to the streets.
Experts say some subsidy-reliant countries in both North Africa and the Levant are locked into a pattern of social control that could become increasingly tough to finance in the absence of either national resource windfalls or rapid economic growth.
Marios Maratheftis, regional head of research at Standard Chartered Bank, says: "From an economic point of view the sensible thing to do is to cut subsidies to reduce fiscal drains on the governments and economic distortions.
"But beyond the Gulf, countries in the Middle East have low gross domestic product per head ratios, and cutting subsidies at times when economic conditions are challenging carries risks of unrest."
Subsidies are becoming more contentious even in the oil-rich Gulf, where they have traditionally been seen as part of the price paid by unelected hereditary rulers for their continued authority. Kuwait this week said all citizens would receive a KD1,000 ($3,550) grant and free food staples for 13 months to celebrate the 50th anniversary of independence and also mark two other anniversaries. On energy, while Europeans often pay about $6 for a gallon of petrol, residents of the United Arab Emirates pay only $1.57 a gallon, Saudis $0.91 and Kuwaitis $0.78, according to a survey in June by AirInc, an expatriate packages consultancy. Water and electricity are similarly cheap.
The six main Gulf states have also kept a lid on prices of electricity, water and some foodstuffs, but some countries are now looking to scrap or peg back the subsidy regimes amid soaring demand for power and water.
The UAE has increased the price of petrol since AirInc's survey, while officials in several other countries have recently warned that current spending on subsidies - and the rampant, unrestrained usage it encourages - is unsustainable.
These cuts will be unpopular with Gulf nationals, experts warn, given the tacit compact between rulers and subjects in which patronage and government largesse are traded for curbs on political participation.
"Power is consolidated by distributing out jobs, rents and wealth," says one economist. "As long as the sheikhs control the oil wealth, people expect something in return."
By Michael Peel and Robin Wigglesworth
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