Obama’s 2nd Term: Less Aid for North Africa?


Many analysts and experts have predicted potential outcomes of US President Barack Obama’s next four years in office and what they could mean for the Middle East.

The election rhetoric proved that Americans are more concerned with national economic and social issues than they are with foreign relations and international aid. The longer that the US economic downturn continues, the more likely it is that the government will reallocate funds intended for foreign aid to domestic programs.

Right now, the US is one of the major sources of dollars for North African economies, particularly Egypt and Morocco. Egypt receives $1.3 billion in military aid alone every year from the US(because of the camp David accords), and last year it announced the creation of an $800 million fund for the benefit of Arab Spring countries.
We believe those types of sums are unlikely to remain the same, given the current situation.

A slow withdrawal of the United States from North African economies implies many political and fiscal movements for the leaders of those countries. Should US aid disappear, countries will have to rely on other methods of obtaining dollars, all of which pose their own problems.

FDI

Foreign Direct Investment (FDI) is another way in which countries can earn foreign currency. This is particularly beneficial in countries with exploitable oil and gas reserves, like Algeria and Libya. Increasing FDI will allow for development and encourage entrepreneurs and businesses to grow. This could be one of the best ways to encourage long-term development in North Africa.

Tourism

Tourism is the last way that foreign money moves into North African countries. Tourism has been a vital part of the economies there(morocco tunisia and Egypt in particular), and virtually disappeared during the violence that engulfed Arab Spring. However, the recent installation of Islamist governments poses an additional barrier.

In order to encourage Western tourism countries must downplay religious law or sharia requirements – tourists are unlikely to visit Egypt if Red Sea beach resorts are shut down. Governments might have to put practical economic decisions above moral or religious ones, which in itself could cause problems with their own constituencies. Already, Egypt is facing a protest this weekend from Islamists who believe that the government is not establishing sharia law forcefully or quickly enough.

There are several implications of these changes. One problem that governments will have is the need to appease both businessmen on the one hand and Islamists on the other. However, the primary change will be an alteration in the balance between the public and private sectors. Without federal aid going to governments, the other means of foreign investment, ie FDI and tourism, will benefit on the private sector. This will result in the diminishment of the public sector and increasing importance, as well as contributions, from the private sector.

It would benefit North African governments to begin policies focusing on the private sector now to prepare for that eventuality.

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