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Geopolitics

Whether you’re a Trumpie, reveling in how President Trump keeps his promises, or a Never-Trumper, horrified at how he revels in dispensing chaos, you can’t but gawk at how he managed to reinvent himself over the past few weeks. In a frenzied sequence involving much “pulling”, he pulled the rug from under the three M’s (May, Macron, and Merkel), pulled the plug on the Iran nuclear deal, pulled the US Embassy from Tel Aviv to Jerusalem and, with a bit of luck, might even pull off an implausible deal with the North Koreans. What he is apt to do next is, as usual, one of those things no betting man would want to wager on.

By enlisting Mike Pompeo as new Secretary of State, and John Bolton as new National Security Adviser, Trump has now bolstered his status as head of the most pugnacious three-headed behemoth of the post-Soviet Union era. With a scorching predilection for busting any status quo established by his predecessors—President Obama being the one who especially inflames his prickliness—the question is, what now for the landscape in the Middle East?

To affirm that Israel and the Saudis exulted when President Trump derailed the Joint Comprehensive Plan of Action (JCPOA) would be a gross understatement. The beam on Netanyahu’s face was as wide as the Gaza strip, and the Saudis must have also fizzed with delight. The question nevertheless arose in regard to what Plan B there might be for Iran. Well, several observations can be factored in for a Plan B.

For a start, in the process of doing away with the nuclear deal, no one could have ignored the stern menace on Trump’s face. He spoke forcefully into the cameras and more than once warned Iran against reinstituting any new nuclear aspirations, threatening them with something akin to the B-2 bombers and other naval armadas he sent to the Korean peninsula at a time, only a few months back, when he was attempting to intimidate Kim Jong-un. It seems to have worked then, so why not with the Ayatollahs?

In addition, it took what seemed only seconds after Trump withdrew from the JCPOA that the Israelis sent fighter jets and bombers on dozens of anti-Iran missions in Syria. That must have set Iran back a notch or two and cost them a few pennies—with the unmistakable promise of much more to come.

Following the decimation of Iranian assets inside of Syria, another shoe dropped, this one barely noticeable. In siding decidedly with the Israelis, and assembling a mouthful of complaints against the Iranians, a US spokesperson stating that Iran had even put at risk American lives in the middle of—of all places—Riyadh. This concern, barefaced as it might seem, nevertheless was in reference to a couple of missiles that Iran-backed Houthi combatants had launched in the general direction of Riyadh.

What is at any rate in plain sight—and has been an essential ingredient of why Trump withdrew from the ill-fated, Obama-inspired, “worst deal in the history of mankind”—is the new “axis” between Trump, Israel, and Crown Prince Mohamad. All three are biting at the chomp to deal Iran additional punishment, come rain or sunshine.

As for France, Germany, and the UK, following the kissy-kissy love-fest between Macron and Trump, and having endured the embarrassment that followed Trump’s withdrawal from the JCPOA, they now face the prospect of the US’s perpetual ratcheting up of sanctions against Iran. The “E3” are thus in the tough spot of having to choose between dealing with Iran and dealing with the US, with prospects of reviving a deal with Iran at best improbable.

At another yet parallel level, the new coalition of “friendly” Arab nations have exhibited nowhere near the same fervor as in the past towards Palestinian issues. Left with little incentive to come to any negotiating table, the Palestinians could well revert to more extremist relationships and behaviors. The only odd thing is that they have not yet embraced the Ayatollahs as benefactors, the Sunni-Shiite divide perhaps still proving stronger than their current predicament.

Finally, to confront the hugely confrontational US/Israeli/Saudi tripartite, the Middle East mosaic seems to be moving towards yet another axis, that involving Russia, Iran, and Turkey, with a prognosis advocating simply that there will be no shortage of action in that part of the world.

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Geopolitics

Anyone who’s spent time in an Arab country can relate to how conspiracy theories abound in that part of the world. In the past, Israel would invariably top the list of suspects every time the Palestinians got the short end of an event. In more recent times however, it’s Iran that has usurped that distinction, with Israel promptly construed to be behind any machination that negatively impacts Iran or its regional cohorts.

Today, Israel is busier than ever fighting off Iranian encroachments in Syria. It is also seen working zealously to confine the roles of Iran-backed Hezbollah and Hamas in Lebanon and Gaza respectively.

As for the US, President Trump’s choice of Saudi Arabia for his first stop on a maiden trip in May of 2017 had implications beyond the pomp and deference he was greeted with. With regard to Qatar though, it is reasonable to assume that when Trump lectured the congregation of some fifty Moslem leaders to put a stop to Arab financial aid going to Jihadists, Qatar’s isolation and blockade had already been baked into the cake.

Another piece of the puzzle is currently playing out. By May 12, President Trump will have to decide on whether to pull the plug on the nuclear agreement with Iran. With French President Macron currently on a state visit to the US, and with France and other European allies steeply engaged in selling tons of sophisticated products to Iran, the smart money is on Macron talking Trump into leaving the deal with Iran more or less intact.

On first blush, it would therefore seem that both the US and Israel at first went along schemes to isolate Qatar, their main objectives perhaps consisting of placating the Saudis and driving a wedge between one of the richest nations in the world and Iran.

Signs have emerged though that Qatar may of late have played its cards effectively, including a concerted public relations blitz that has boosted its standing, starting with the US. 

Qatar’s initial set of arguments had it that the Saudis and Emiratis always wanted to punish it because of its independence, the relative emancipation of its citizens, and its popular stance against tyrannical rule. Furthermore, Qatar claimed that free-wheeling Al-Jazeera, their prime news agency, is the precise symbol that Qatar’s neighbors fear the most. They assert that everything else, including Iran’s participation in their critical gas and oil industry, is nothing but a smokescreen that can easily be resolved, given good faith all around.

Nevertheless, that good faith has yet to emerge. In fact, the sniping and hurling of ugly propagandist claims, particularly between Qatar and its prime detractor in the United Arab Emirates, seem to continue on a cresting trajectory, thrown about copiously and with hardly any consideration for mediation.

Qatar’s PR campaign, unprecedented among Arab nations in both depth and sophistication, is giving reason to believe that Qatar has indeed turned the corner and is winning the diplomatic war with its feuding counterparts. Noteworthy in that regard is the US’s latest posture which, while calling for compromise, emphasizes strong support for Qatar.

It started with strategic talks during visits to the US by the Qatari Emir himself, Sheikh Tamim Ben Hamad Al Thani, and a plethora of visits by other prominent members of the Al Thani family, as well as cabinet ministers, and Qatari figures with significant links to industrial and aviation interests.

To cite a few examples, Qatar first reminded the US media of the importance of the ten thousand-strong Al-Udeid Air Base the US maintains in the near the Qatari capital of Doha. They tout that base as the “refueling station” for planes going to all of Afghanistan, Iraq, and Syria, the latter as recently as a couple of weeks ago when the US and allied planes bombed chemical facilities there.

In a profusion of other bold moves, Qatar pledged investments in the US economy to the tune of $100bn, $10bn of which towards infrastructure projects dear to President Trump’s heart, and the doubling of Qatar’s participation in the Qatar-US Economic Forum’s $125bn partnership. In addition, Qatar’s all-out rallying of public opinion included military partnership with individual states in the US, and large missile deals with the Pentagon. There was additionally an impactful and repetitive Qatari outcry soliciting goodwill from Kuwait, Bahrain, Turkey, and other European players with influence in the Middle East.

There are thus signs, clearer by the day, that underscore Qatar’s effective campaign to rehabilitate itself as a valuable member of the of the fraternity of Gulf states. What is left now is for a few multinational players to line up behind current Kuwaiti efforts to keep the dispute on the forefront of negotiations for a resolution of the conflict that many claim has already caused more regional disruption than was ever called for.

 

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Geopolitics

British diplomat Martin Griffiths, the new UN Special Envoy for Yemen, carries a stack of mediation qualifications so deep that he is viewed as the best—and perhaps last—chance for a quick and sustainable resolution to the civil strife in Yemen.

However, what Mr. Griffiths has bought into is no ordinary conflict. The urgency of this UN effort derives from the failure of prior missions to bring an end to the thousand days of deadly factional fighting that has killed more than 10,000 people, maimed tens of thousands, displaced another two million, ignited a massive outbreak of cholera, and led to a still-surging hunger crisis—all of which being dubbed the worst man-made humanitarian disaster in modern history.

In addition, fuel was thrown over the flames recently when some faction, presumably the Houthis, shot ballistic missiles, presumably Iranian-made, at targets in Riyadh, presumably one or more royal palaces. The cynical viewpoint would thus have it that as a result, the Yemen that today greets Mr. Griffiths is being held together with duct tape.

What might nonetheless be helpful to the new envoy is the simmering public relations quandary that mostly Saudi Arabia—but also the U.S.—finds itself in. Detractors blame the Saudi air force for having dropped ton after ton of destruction from the air, as well as for the naval blockade that conjured massive “food insecurity”, a UN euphemism for spiraling food scarcity and food prices that people can hardly afford. The Yemeni riyal for example lost 50% of its value over only the last 12 months.

As for the U.S., congress there is getting restless with regards to America’s considerable role in the air campaign, providing critical midair refueling for Saudi and Emirati warplanes and, together with the UK and France—and perhaps Israel as well—assisting with intelligence and bomb targeting logistics. One might therefore infer that the pressure from across public opinion in the West could perhaps render Mr. Griffith’s task a little easier, if only because the Saudi-led coalition might be ready to relent, at least for the duration of Griffiths-led peace talks.

There are other conflicting paradigms that abound in that poorest of Arab nations, for what started in early 2015 as a falling-out between two well-defined nemeses has metastasized into a plethora of armed-to-the-teeth splinter groups—each with its own fledgling agenda.

To cite just the one example, one of the conflagrations involves the U.S.’s independent air strikes against Jihadist militants from al-Qaeda in the Arabian Peninsula (AQAP). These have evolved into al-Qaeda’s leftover yet best organized Jihadists in the world, operating brazenly out of Yemen’s forbidding terrain in the east, and conducting regular and brutal strikes against civilians and government forces in the south. Why is that prickly? Because U.S. ally Saudi Arabia is counting on those same Jihadists—and some say providing them with arms—to counter the separatist movement in Aden and other parts of the south which, by the way, happens to be supported by the United Arab Emirates, staunchest ally of the Saudis.

This is further exacerbated by a critical enmity that developed over the past few months between President Hadi and the UAE, forcing the Saudis to keep Hadi and his sons and key ministers under house arrest in Riyadh.

One likely outcome might thus involve this increasingly important separatist faction. Known as the Southern Transitional Council, their fighters, including remnants of ex-President Saleh loyalists, recently exchanged fierce shelling and shooting with government forces, proving they’re there to be reckoned with, and likely earning them a meaningful say in a prospective unification government.

In another predicable outcome, Iran and their Hezbollah cohorts may be amenable to pressuring the Houthis into enabling the resumption of peaceful distribution of food and other badly needed necessities throughout areas they control. This would doubtless be negotiated against another considerable representation in such a new government, much like Hezbollah parliamentarians did in Lebanon.

The first task that Mr. Griffiths faces however would have to consist of bringing about a ceasefire that can hold. As long as the cross-country duels remain the order of the day, and ballistic missiles keep getting hurled at Saudi territory, nothing else can be achieved.

Next would have to be getting the Saudi-led coalition to lift its air, land and naval blockade, and get all the major factions around a conference table, with the promise of getting UN troops to maintain the peace, and of securing Arab money and foreign aid for the rebuilding of Yemen.

Of course, none of that is in stock and ready for the taking. Instead, the new UN envoy for Yemen will have to tweak his notable credentials and incite a little peacemaking magic.

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Geopolitics

As the first signs of spring 2018 dawn upon the nations of the Gulf Cooperation Council (GCC), it has become all the more reckless to hypothesize as to how the different pieces of the region’s political mosaic will settle. The only responsible take-aways that can be coerced out of this tumultuous first quarter of the year are that peace between Palestinians and Israelis is on ice, while the divide between Sunnis and Shiites is on fire. One or two recent developments are nevertheless noteworthy:

For a start, there is reason to believe that the fervor that ordinary people on the streets of Riyadh and Abu Dhabi had in times past for the Palestinian cause has waned. Had an American administration decreed to move the U.S. embassy from Tel Aviv to Jerusalem only twenty or so years ago, all hell would have broken loose, seriously rocking the boat for some of the region’s regimes. Instead, when President Trump recently made precisely that kind of pronouncement, the burning of tires and effigies on the boulevards was, if anything, muted. Instead, what did in fact emerge was the further cementing of a hitherto forbidden triangular relationship between Saudi Arabia, the UAE, and Israel, with Bahrain tagging along its critical Saudi benefactors.

Perhaps to button things up, Israel then chose to follow up by retaliating en masse to, of all things, an Iranian drone that may or may not have pierced its air space. By sending fighter jets to exert a heavy toll on Iranian and Syrian assets inside of Syria, and at the conceivably negligible cost of one of their aircraft, Israel in effect further consolidated its ebbing entente with the Saudis and Emiratis.

That sort of diplomatic and military maneuvering naturally doesn’t happen in a vacuum. The new coalition has Israel relieving the U.S. from having to defend its main Sunni clients from Iranian-backed Shiite hegemony. Did we not hear President Trump repeatedly berate past U.S. administrations for having spent “$7 trillion” on the Middle East? And doesn’t Israel benefit handsomely from opening up Arab markets with tens of millions of new and financially robust consumers? As for the Saudis and Emiratis, they are if anything more comfortable with the ever-ready Israelis having their back than with the invariably unreliable United States. Furthermore, to top it all, Trump’s “America First” and “jobs, jobs, jobs” paradigms get a boost as well, with billions of dollars’ worth of U.S. weaponry supplied annually to all three nations.

And yet, in a part of the world where the discernable is always fickle, and the improbable likely, it is foolhardy, at a time when most anything can derail pacts stronger than that in the Middle East, to proclaim that the die is cast for that alliance. For example, while the Israeli-backed coalition has air dominance, Iran can wield meaningful influence on the ground with its revolutionary guard corps in Iraq and Syria, and its Hezbollah, Hamas, and Houthi proxy brigades in Syria, Lebanon, and Yemen—plus the thousands of artillery rounds and missiles that can reach every part of the region. The Fighting in Yemen as well, to cite another example, seems to be a toss-up as to which of the two sides will bear the brunt of the responsibility for the killed and maimed, and genocidal famine, that the country is experiencing.

As for Saudi Arabia’s current prospects for peace and prosperity, Crown Prince Mohammed bin Salman could surely use a few more years of consolidation to have the Kingdom’s youth witness in real time some of the benefits of his ambitious 2030 vision and anti-corruption campaign. In the interim, these moves, and the regime’s attempts at breathing a little fresh air into women’s emancipation and other cultural and political freedoms, may have to endure a little more understandable skepticism.


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Economy, Geopolitics

On December 5, 2017, Kuwait Emir Tamim bin Hamad al-Thani announced the abrupt ending of the 38th Annual Gulf Cooperation Council (GCC) Summit on its first day.  According to the Emir, the GCC was considering ways to modify the GCC’s statute to allow for more effective dispute resolution. “Any dispute on the Gulf level must not affect the continuation of the summit.”   This was the first meeting of the GCC since the Arab world’s crisis with Qatar began in June 2017. The diplomatic rift began when several Arab countries (including Bahrain, Saudi Arabia, and the United Arab Emirates) cut their relationships with Qatar due to their belief that the Qatari government funded terrorism and has close ties to Iran. The crisis has persisted and still remains a difficult thorn in the side of the decades-old GCC. Holding this summit was an indicator for the world that the situation could be resolved and the GCC could remain, as noted by Emir Al Sabah.  But while there had been high hopes that holding the annual meeting may actually bring parties together to address concerns, the fact that only two heads of state (the Emirs of Qatar and Kuwait) attended indicated the rest of the Gulf was not ready to talk. The sudden conclusion of the summit is not a high indicator for success.

The Gulf Cooperation Council has been seen as a success since its inception in 1981. It provided a coordinating platform for the burgeoning oil-producing Arab Gulf countries and a solitary unit to counter the influence of Iran in the wake of the Iranian Revolution. The cultural and historical ties between the six-member states–Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates–is the foundation by which the large, coherent entity was formed. “It is also a fulfilment of the aspirations of its citizens towards some sort of Arab regional unity.”   The GCC has worked to align its economic, social, technological, and military efforts for the mutual benefits of each member state.

One aspect of the GCC that is not well-developed, however, is its dispute resolution mechanism. During the 2017 annual summit, Kuwait Emir Sheikh Al-Sabah noted that a task force may be set up to deal with the crisis between the GCC and Qatar, but the GCC already has such mechanisms to handle these problems. In fact, this is not the first rift among Qatar and the GCC. Kuwait mediated this issue in 2014 when similar concerns over Qatar’s foreign policy emerged and Bahrain, Saudi Arabia, and the UAE cut diplomatic ties.

The primary concern, of course, for the member states is survival of this unifying platform. “The last thing we need is for the GCC, the most perfect body in the Arab world, to catch the flu or catch the disease of Arab fragmentation and splintering,” says Abdullah Al Shayji, Professor of Political Science at Kuwait University. Various divisive issues have risen particularly since the Arab Spring protests in 2011 and the current U.S. administration’s approach to unifying the Sunni Arab world against the Shi’a Iranian threat leads to an additional pressure among GCC members. Part of this is being fueled by the Crown Prince of Saudi Arabia, Mohammed Bin Salman. The young prince’s ambitious modernization efforts have been rapid as of late and media reports indicate he was behind the UAE’s recent announcement of a new coordination effort with Saudi Arabia. “According to the Resolution, the Committee is assigned to cooperate and coordinate between the UAE and Saudi Arabia in all military, political, economic, trade and cultural fields, as well as others, in the interest of the two countries.”  There are concerns that such a step indicates the beginning of the end of the GCC in its current composition and unity may be no more.

Convening the GCC member states did indeed illustrate that the cooperation body still holds meaning for the Gulf, but the inability to resolve the crisis with Qatar may lead to additional long-term problems. The new Emirati-Saudi cooperation agreement could just be first of many launched among the member states to maneuver around the Qataris, but the fact remains that the blockade is costing all members billions of dollars in lost revenue. A break among the Gulf states could also mean a weaker Sunni front to the perceived encroachment Iranian influence in the region as the Syrian and Yemeni civil wars rage on. We may very well see rapid reform instituted in the GCC to deal with the diplomatic crisis, but it is unlikely to be successful as long as the Sunni Arab states demand foreign policy changes that the government of Qatar believes puts them in a difficult position.

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Economy, Investment

In October 2017, the government-owned news outlet The Jordan Times reported that Minister of Planning and International Cooperation Imad Fakhoury had met with members of the U.S. administration to ask for additional assistance in carrying out economic development projects in the country. For Fakhoury and the government of Jordan, continual reliance on such assistance from the international community is an important component of their economic development strategy. As one of the few beacons of stability in the region, Jordan has positioned itself as a reliable partner and ally for many countries. Jordan also wants to be increasingly seen as a prime location for international business ventures amidst the crises of the broader Middle East. The government is trying to balance international support with ongoing reform measures to make progress with the Jordan 2025 plan as the guiding mechanism for change.

In fiscal year 2017, the U.S. government reported it provided $1.28 billion in economic aid primarily through macroeconomic growth initiatives via the Department of State and USAID, making Jordan one of the largest recipients for aid.  That was under the Obama administration. Under President Trump, foreign assistance is just one area among several under consideration for deep cuts. As of now, only a little under $400 million is planned for economic assistance to Jordan. Such conversations for the government come at a time when Jordan is leading an ambitious national project to fundamentally revamp many aspects of the country. Launched by King Abdullah II in May 2015, the aforementioned Jordan 2025 plan aims to implement reforms focused on improving the private sector, expanding civil society, and increasing democratic institutionalization. Fakhoury noted, “the main objectives of the blueprint are to address the challenges of rising living costs, poverty and unemployment and to lead the community to a more prosperous level in the coming 10 years.Jordan is just one many countries in the region undertaking ambitious long-term economic plans in this manner. But as the GCC-Qatar rift persists and oil prices continue to fall, Jordan’s path toward diversification puts it further ahead than the Gulf countries.

One way in which these changes are happening on the economic front is through partnerships with other countries and international organizations. The International Monetary Fund (IMF) worked with Jordan to develop an economic development reform package in 2016 to complement the strategy of the Jordan 2015 plan. As part of the reform, an initial assessment of the situation was in order. While Jordan experienced economic progress from 2010 to 2014, stunted growth caused by an influx in Syrian refugees as a result of the Syrian civil war, rising debt and deficits, as well as disruptions in trade caused by regional crises has affected the country since 2015. Though the country is in the process of impleme. These are expected to continue for some time in order to get the country back on track.

Despite these harsh realities, Jordan’s reforms steps are steady. The World Bank recently noted in its 2018 “Doing Business” report that Jordan has improved its ranking to 103 which is not far behind most of the GCC and better than the regional average of 126. “Divided into subnational and regional level analyses, the report covered 11 indicator sets including starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.” Major contributors to this improvement over the last few years included how much easier it is to get credit and streamlining the customs processes at ports.

So what is in store for Jordan? Despite not having a wealth of natural resources like their neighbors in the Gulf and Iraq, Jordan plans to use their strategic geographic location in the region and political stability as a launchpad to the Middle East and Asia for international businesses. As noted in the Jordan 2025 plan, the Hashemite Kingdom wants to become a “regional hub for architectural and engineering services” as well as for transport and logistics. They also plan to further develop several other sectors like tourism, health care, digital business, and financial services. Jordan’s rather liberal society, openness to investment, and stability provide a fertile investment climate for would-be investors.

The major reforms and changes taking place in the country are directed at reducing trade barriers and clarifying and implementing procedures more in-line with international standards. Tariffs and other taxes are still applied to most imports and some items require licenses to import (like pharmaceuticals), but the environment is becoming more friendly to investors and this is a priority for the government. As Jordan moves forward with its reforms, international businesses can look forward to new opportunities in a country in the center of a rapidly changing region.

 

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Economy, Investment

In July 2017 the Central Bank of Egypt announced that they would not issue legislation allowing the trading of cryptocurrencies. The result is that Bitcoin and others are not legal money until they are regulated. Earlier in the summer, Bitcoin Egypt had announced it would go live in August 2017. It was, in fact, this announcement made by Bitcoin that promted the response seen above from the Central Bank of Egypt denying it. Currently the actual launch date is yet to be announced, and there will likely be many more hurdles before Bitcoin and others are able to get the regulation they seek. Cryptocurrency is one of many contentious issues affecting the future of cash in the Middle East.

While there are stark differences in terms of economic development between the oil-rich countries of the Arabian Gulf and the countries of North Africa still reeling from the aftermath of the Arab Spring protests of 2010-2011, there are commonalities. According to Finextra Research, cash is still the preferred method of payment in the Middle East. Most of the region uses smartphones and debit cards, but economic and technological infrastructure is lacking in much of the region. Do a quick Google search on “debit cards in the Middle East” and you will come across endless forums full of would-be travelers asking about the use of debit and credit cards at famous tourist destinations in the region. Unsurprisingly, seasoned tourists recommend they bring the cash and keep the debit card in case they need to use an ATM. While the use of debit cards is on the rise (particularly in the GCC countries), many merchants are not able to handle debit and credit card transactions.

This fact is affecting e-commerce businesses as well. Careem–a ride-sharing competitor of Uber–is currently valued at $1.2 billion and outpaces Uber in the region. One interesting difference: riders can pay in cash. Careem’s success is not felt across sectors. Souq.com, an online shopping platform, was the region’s primary destination for online goods since 2005. In the spring of 2017, Amazon acquired Souq.com in an attempt to expand its reach further into the region after a decline in sales. But much like their earlier venture into e-commerce in the Middle East, a problem remains: how to get customers to pay online?

One idea that has been suggested is the use of Bitcoins, or generally, cryptocurrency. The huge advantage being that a user would not need a bank account, only an internet connection and an e-wallet. With this in mind, it is not surprising that a few Bitcoin companies have emerged in the region. ShuBitcoin touts the benefits, “The Middle East, unfortunately, ranks among the lowest in terms of access to financial services. However it also has one of the highest mobile penetration rates in the world, and Bitcoin has the potential to bring financial services to anyone with a phone.” Not only can this be helpful for the average person wishing to make transactions online, it also provides access to international markets for businesses which has been particularly helpful for startups in the Gulf.

Unfortunately cryptocurrencies have been abused and globally there have been many reports that terrorist groups have used Bitcoin transactions to fund their activities, undetected in the secure blockchain records. For governments that have difficulty monitoring financial activity and without strong institutional capacity to handle corruption, Bitcoin poses a problem. If Bitcoin is attractive because one does not need a bank account and because the transactions are secure, governments are more likely to have an issue.

Whatever the issues are for Bitcoin and other e-commerce activities, it cannot be denied that the use of internet for financial transactions is popular in the region. With a large youth population and high internet penetration and mobile phone usage, it is inevitable that the Middle East will become better integrated into trends of digital transactions and commerce.

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Geopolitics

Tunisia has reached a fork in the road. At the end of one path, there is a complete democratic transition wherein the voices of the citizens are heard, rights are acknowledged, and the economy is liberalized. Down the other, there is a fragile central government unable to respond quickly to reform, a flat economy, and the omnipresent threat of recruitment by extremist groups of unemployed youth. Both of these paths are impacted by corruption. Since the fall of the Zine El Abidine Ben Ali regime in 2011, the newly minted democratic state has tried to stabilise operations and begin the implementation of various reforms, but the lingering effects of political instability caused by various successive governments, political party in-fighting, and the informal economy (which was at the centre of the situation involving the self-immolation of street vendor Mohamed Bouazizi that sparked the revolution) continue to fuel corrupt practices.

In fact, corruption has risen, according to Chawki Tabib, the head of the Tunisian Anti-Corruption Committee. “The CPI [corruption perception index] which is issued annually by TI [Transparency International], confirmed its increase. In 2010, which marked Ben Ali’s final year in power, Tunisia occupied the 59th position according to the CPI, while it made it to the 76th position in 2015.” Tabib explained most recently that while the government continues to prosecute members of the Ben Ali regime in court, the corrupt system is still in place that benefitted the few and due to weaknesses in the government, others have been able to exploit the system. He goes on to say that stamping out corruption in Tunisia can only be successful with political will.

How does this play out in the lives of average Tunisians? Corruption touches nearly every facet of life around the country. As most people rely heavily on government-subsidised services, declining capabilities by the government often leads to paying bribes in order to get the most basic services to be carried out. Dealing with the police, judiciary, businesses, and educational institutions are often marred by corrupt dealings since the “democratisation of corruption” has occurred since the Arab Spring revolutions. In other words, since the revolution, it not only the government involved in corrupt activities; now, with weak government institutions, there is little preventing corruption across many sectors.

In April 2017, a journalist broke the story that the parliament had reintroduced a bill to give amnesty to those who had taken part in corrupt dealings during the Ben Ali regime; the public response was swift. Protests erupted and were followed by additional demonstrations and skirmishes in May 2017 when the government sent the army to the oil fields in southern Tunisia to protect the area from protesters who had turned off the pipeline. There was a perception that the government was hiring those outside of the community to come in and work in the oil fields and little of that money was invested back into the community. “The protesters’ demands have steadily solidified: a quota of jobs for local people at the oil companies drilling in the region, the creation of jobs in an environmental agency and an investment fund for job creation programs.” Later that month, the Prime Minister Youssef Chahed launched a campaign aimed at cracking down on corruption across the public and private sectors. While the campaign has been immensely popular among Tunisians, there are those that believe the campaign was strategically launched to turn attention away from the country’s economic woes.

Because Tunisia has been the darling of the international community since the Arab Spring protests, international assistance is saturating the scene. The International Monetary Fund started implementation of a 4-year Extended Fund Facility (EEF) in 2016. In August 2017, Björn Rother of the IMF visited Tunisia to check on progress of the EEF’s implementation. “The outlook for the Tunisian economy is slowly improving, but challenges remain. Growth is on track to reach 2.3 percent in 2017, supported by a pick-up in phosphates, agriculture, and tourism. But structural obstacles in the economy continue to weigh on exports.” Structural obstacles include systemic and widespread corruption, but with the government’s new anti-corruption campaign, there is hope that it will boost business confidence in Tunisia.

As Tunisia progresses on this path toward economic development, there will be bumps along the way and dealing with corruption will continue to be a priority. The government’s efforts to become more transparent and accountable is in direct response to not only the Arab Spring protests, but also because the government understands that democratic transition must go hand in hand with economic development, thus addressing the most basic demands of the Tunisian youth.

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Geopolitics, Investment
For a long time China had viewed the Middle East as a US influence zone. But, as a reflection of its growing power and ambitions, it is now becoming a more visible actor in the Middle East. Beijing’s involvement in the region is primarily motivated by its economic interests. Qatar is China’s top gas provider and Saudi Arabia is its second largest oil supplier. The United Arab Emirates (UAE) serves as a distribution centre for China as most Chinese exports to the Gulf Cooperation Council, West Asia, Africa, and Europe go through the UAE. As demonstrated in the table below, its trade relations with the region have also grown tremendously and are likely to grow further. In fact, it has recently signed a major deal with Saudi Arabia that worth nearly $65 billion and agreed to increase bilateral trade with Iran to $600 billion in the next ten years.

 

China’s trade volume with S. Arabia, Iran, Egypt, Turkey, and UAE in 2005 vs. 2015

 

 

Saudi Arabia

Iran

Egypt

Turkey

UAE

Year

Export

Import

Exports

Imports

Exports

Imports

Exports

Imports

Exports

Imports

2005

3,824

12,246

3,297

6,787

1,934

211

4,254

622

8,730

2,046

2015

21,684

30,151

17,831

16,035

11,963

916

18,63

2,961

37,069

11,532

Note: Total Import / Export Value in millions of US Dollars – current value.

Source: Compiled from the World Integrated Trade Solution database (World Bank), which is available at http://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/2005/TradeFlow/EXPIMP/Partner/ARE/Product/all-groups

China’s interest in the Middle East is also related to its ambitious “Belt and Road Initiative” (BRI). In 2014 Beijing launched this $40 billion project that aims to revive the Silk Road, its ancient trade network, to connect China to Central Asia, the Middle East, Africa and Europe through roads, railways, ports, and oil and gas pipelines. There are already noteworthy achievements. For example, in 2016, a freight train made the journey from China to Iran in just 14 days, significantly shortening the regular 45 days delivery time via sea route. Beijing is also currently negotiating a free trade agreement with the Gulf Cooperation Council (GCC) and working with Israel on a railway proposal to connect the Red Sea to the Mediterranean that bypasses the Suez Canal. Once completed, the BRI will significantly boost China’s trade and economic relations globally.

There are also political motives that might explain the recent momentum in China-Middle East relations. Beijing’s most important foreign policy conflict involves the South China Sea (SCS), which is one of the most strategic commercial shipping routes in the world and also contains significant natural resource reserves. Beijing claims sovereignty for nearly the entire SCS. However, the United States doesn’t recognise Beijing’s claim, viewing it as a violation of international law and maintains a strong military presence in the region to challenge China. As a rising power, China first needs to secure control of its neighbourhood. Its greater involvement in the Middle East may help China in this regard by diverting US attention away from the SCC to the Middle East. In fact Beijing announced its first “Arab Policy Paper” in 2016, recently opened its first overseas naval base in Djibouti and started the construction of an arms factory in Saudi Arabia to manufacture armed. Others had previously refused as China has grasped the opportunity.

Beijing also actively promotes the Shanghai Cooperation Organisation (SCO) in the Middle East, a security organisation jointly led by China and Russia. Iran applied for SCO membership in 2008 and Turkish President Erdogan mentioned in 2016 that Turkey could also seek SCO membership. India and Pakistan have recently become full members, and China’s Deputy Foreign Minister Li Hailai stated that Beijing “welcomes and supports Iran’s wish to become a formal member of the SCO” and would also consider Turkey’s membership if it files an application. China’s Ankara ambassador also stated in May 2017 that Beijing “is ready for Turkey’s membership.”.

China is now a more active player in the Middle East, not only in economic but also in political terms. China’s active engagement in the Middle East may actually contribute to stability in the region. A stable Middle East serves China’s interests better as conflicts within the Middle East such as the Qatar crisis pose a threat to its energy supplies, free-trade negotiations, BRI project, and regional trade prospects. Beijing emphasises sovereignty, territorial integrity, and the principle of non-intervention and avoids taking a clear side in political conflicts in the area. It maintains good relations with both Iran and Saudi Arabia and has no major enemy in the region. Beijing appears to be an honest and impartial broker in Middle East conflicts and may soon play a greater role in mediating disputes, which may further strengthen its standing in the region in future.

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Investment

In March 2015, Egyptian President Abdel Fatah El-Sisi announced at the Egypt Economic Development Conference the intent of the government to build a new capital for the country. Dubbed the New Capital Cairo Project, the conference convened to encourage international investment in an ailing economy. According to the project’s website, “Cairo Capital is a momentous endeavour to build national spirit, foster consensus, provide for long-term sustainable growth and address various issues faced by Egypt through a new city, which will create more places to live, work and visit.”[1] The Egyptian government looks to the booming cities of the Gulf for inspiration in their desire to build smart cities fueled by renewable energy and controlled traffic congestion while reflecting Egypt’s unique geographical and geostrategic location. But Egypt is plagued by corruption and, despite the goals of the Arab Spring protests, an authoritarian government. International investors have taken to the project, seeing Egypt’s re-emerging role in the region as a boon for business. But only time will tell if this mega-project will have the intended effect of changing perceptions and situations for all Egyptians.

In late 2016, the Egyptian government announced new details on the project. The new capital will be located 28 miles (45 kilometers) to the east of Cairo and will occupy about 170,000 acres of land.  The first stage should be completed within two years and will include the construction of the buildings of the ministries and legislative bodies, embassies, universities, “smart” villages, and a central park, “the largest in the Middle East.”[2] The new capital is expected to house about 250,000 people downtown and about 5 million throughout the city. With this comes a need to address Egypt’s notorious traffic congestion issue. According to Youm7 news, the streets of the capital are expected to span about 124 meters over 6 lanes compared to Egypt’s maximum 90 meters across.[3]

While the government claims it will be built 100% by Egyptians, there has been much interest from international investors, particularly from China. Despite hiccups with Dubai-based and Chinese investors earlier in the year, the project is now moving forward with China Fortune Land Development (CFLD). “The company is developing similar projects for China’s own planned new central government district in Xiongan as well as other locations in China, Indonesia, Vietnam and India. The Egypt project would be its first in Africa.”[4] This is an important step for China, as it builds its influence in the region. While China’s competitors in the region–the United States and Russia–are embroiled in the conflicts in Syria and Iraq, the Middle Kingdom is looking towards a future beyond conflict. In 2016, China released strategy on engaging the Middle East.[5] China’s focus on developing the “Silk Road Initiative,” which aims to develop the economic capacity of China and 60 other nations into an economic zone, extends to Egypt. “Although most of the mutual trade between China and Egypt is represented in Chinese exports to the most populous Arab country, China imports of Egyptian commodities in the first two months of 2017 have reached 159 million dollars, with a 326.25 percent year-on-year growth.”[6]

The development of a new capital with modernised amenities seems like a dream for would-be Cairenes who grow weary of the grit and gridlock, but Egypt’s recent history of taking on mega projects without ample planning and forecasting may work against them. In the past two decades, the government constructed satellite cities around Cairo in hopes of encouraging people to move into less densely populated areas. Apartment complexes and shopping centers sprung up, but the move by city dwellers has been slow.[7] Not only is there a lack of available public transportation to downtown Cairo other than the city’s populous “microbus” system, but housing and entertainment amenities are expensive.

While this project may appear to be the solution to Cairo’s problems, there are other issues that must be addressed to ensure that the new capital does not end up like the last one. Chief among them is financial mismanagement. The Egyptian pound’s value has been decreasing since the 2011 revolution and the government has struggled to secure loans to fund various economic reforms such as cutting subsidies. Corruption is another challenge. According to the U.S Department of Commerce, “Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.”[8] Corruption runs deep and is one of the triggering factors of the Arab Spring protests. Unless these issues are addressed, Egypt’s grand new capital may flounder before it gets off the ground.

 

[1] http://thecapitalcairo.com/about.html

[2] http://www.youm7.com/story/2016/11/7/العاصمةالإداريةالجديدةمشروعقومىبأيادمصرية-100-تستوعب-6/2956949

[3] http://english.alarabiya.net/en/business/economy/2017/07/29/Egypt-s-new-capital-among-world-s-top-urban-mega-projects-.html

[4] https://asia.nikkei.com/Business/Companies/Chinese-project-to-build-new-Egyptian-capital-revived

[5] http://news.xinhuanet.com/english/china/2016-01/13/c_135006619.htm

[6] http://www.globaltimes.cn/content/1045999.shtml

[7] http://www.cnn.com/2016/10/09/africa/egypt-new-capital/index.html

[8] https://www.export.gov/article?id=Egypt-Corruption

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