Kuwaiti officials view a pier at Al-Ahmadi refinery, about 30km from Kuwait City.
© AFP
Kuwaiti officials view a pier at Al-Ahmadi refinery, about 30km from Kuwait City.
Last updated: May 22, 2013

The fallacy of the oil curse and the fate of the Arab world

Banner Icon "A simple privatization program whereby oil revenues are distributed to the citizens would be a start," writes Prof. Mohammed Akacem about the relationship between oil and the rule of law.

Much has been written about the oil curse and its impact on the economic growth and development of oil based economies and particularly those in the Arab world. The Arab Spring proved that oil riches are not enough. Academic careers have been made and countless articles and books published on the topic, yet oil or natural resources in general have nothing to do with the demise of the Arab oil economies.

So what does? Simple.

The rule of law.

Those countries that discovered oil after having built solid institutions such as the rule of law, protection of property rights and an independent judiciary have done very well. Look at Norway. One may disagree with the extent of government intervention in the economy, but it is hard to argue with the fact that the country has done very well by its citizens compared with the MENA region. However, the countries in MENA that discovered oil before establishing proper institutions have done poorly. One does not need a whole book or a regression model - or multiple reports by multilateral agencies and countless consulting outfits - to conclude the obvious, for example, to prove that “water does indeed run downhill.” In this case, Arab oil exporting countries still do not have the proper institutional set up, despite the events of the Arab Spring.

If we look at the 2011 governance chart for North Africa and Norway, it is clear that the Arab countries’ performance was dismal.

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Libya’s performance makes one wonder why it took so long for the people to rise. Of course, Qaddafi was no Mother Theresa. Despite the oil riches, the population in Libya did poorly. Look at the voice and accountability measure. It barely registers in the chart. No voice or accountability throughout North Africa - and much of the Arab world for that matter - was the strongest driver behind the Arab winter of discontent.

Further fueling the discontent was the rampant corruption in the region. The rank of the countries in the region compared to that of Norway does not need explaining.

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Suffice it to note that the oil economies in MENA performed poorly. Oil did not cause the corruption as the exceptional rank of Norway shows. The lack of proper institutions did. This could easily be corrected if only the authorities in these oil economies of the MENA region disengage from the oil sector and thus eliminate the rent seeking behavior that goes on in these countries. While on the surface this tactic may not look feasible, it could be a first step towards starving the governments from the oil revenues that helped them stay in power.

A simple privatization program whereby oil revenues are distributed to the citizens would be a start. Waiting for the institutions to be built and emulating Norway will not work given how far off the region is from perfect, thus the drastic solution is to strip governments from the very source of the problem. It cannot be any worse than the status quo, which produced the Arab Spring and may push other countries over the edge in the near future.

What is sad is that the west watched in silence all of these years while the pressures from the youth bulge in MENA finally erupted into a full-scale revolution. It is time that we quit blaming the oil riches for the poor performance of economies endowed with it and start looking at what really matters: proper institutions.

The poor in MENA do not necessarily revolt because they are poor, but they have and will revolt because they are and have been excluded and prevented from the chance of improving their lot.

The views expressed are the author's own and do not necessarily represent those of Your Middle East. The article is an excerpt from a paper presented at the annual meeting of the Association of Private Enterprise Education, in Maui, Hawaii on April 14 - 16, 2013.

Mohammed Akacem
Mohammed is Professor of Economics at Metropolitan State University of Denver.
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