Trading Places

How the trade vs. aid debate shows the different trajectories of Egypt and Tunisia.    

Last week, something rare and heartening happened in the Middle East: A peaceful transition of power. Tunisia's Islamist al-Nahda party resigned following parliament's approval of the country's new constitution, handing authority to a technocratic government that will pave the way for elections later this year.

Meanwhile, the news out of Egypt could not be more different. Army chief Abdel Fattah al-Sisi was promoted to field marshal, and the military leadership endorsed his run for the presidency -- steps widely seen as a prelude to Sisi assuming the country's top office.

While the protesters who took to the streets of Tunis and Cairo in 2011 appeared to be inspired by similar aspirations for democracy and social justice, it seems clear that the two countries' political fates are poised to diverge. The past experiences of countries that have attempted to make the difficult transition to democracy explains why this may have happened, and offers some guidelines about what factors will likely determine Tunisia's future success or failure.

History tells us that an initial move toward democracy does not guarantee success. Some 90 countries have attempted democratic transitions in the last half century. Of these, 46 percent transitioned to democracy within a few years, 39 percent regressed to autocracy after a short-lived experiment with democracy or achieved only minimal change, and 15 percent moved gradually to democracy.

While each transition is unique, examining the 90 episodes offers some insights into whether today's transitioning countries in the Middle East are likely to complete the process of democratization. Research shows that low per capita income, a history of military control, gender discrimination, and an abundance of natural resources all significantly hinder democratic transition. Interestingly, neither macroeconomic conditions nor international assistance significantly affect the likelihood of achieving democracy.

Judged by these criteria, it's clear that Tunisia had a number of advantages from the onset. Going into the revolution, Tunisia's per capita income stood at $8,800 -- relatively high compared to $6,300 in Egypt. Tunisia's military had been sidelined by the country's last two presidents, as they sought to protect their own power. Tunisia granted the most equal rights for women in the Middle East, with a greater share of the female population enrolled in primary and secondary school than of the male population.

The economic conditions in both countries have deteriorated since their uprisings three years ago. Gross domestic product (GDP) growth dropped by more than 3 percentage points in both cases and unemployment increased from already high levels, pushing thousands into poverty.

Egypt and Tunisia's leaders handled these economic challenges, as well as serious political obstacles, in starkly different ways -- as the two countries' dissimilar initial conditions would have predicted. When massive anti-government protests seized Egypt, the military stepped in. After the high-profile assassination of two secular leaders in Tunisia, the Islamists stepped down.

The relative success of Tunisia's transition, and Egypt's high-profile failure, show the limits of foreign aid. Over the past three years, Tunisia has attracted limited development assistance. Foreign cash, meanwhile, has poured into Egypt: Qatar, Turkey, and Libya pledged $12 billion when Morsi was in power, only to be replaced by similar funds from Saudi Arabia, Kuwait, and the United Arab Emirates after the military took over. Throughout the period, the United States has continued its assistance to Egypt of more than $1 billion per year.

If access to finance has done little to ease political transitions, experience suggests another way in which outsiders can offer help: History suggests that trade is more important than aid.

Countries with economies integrated into regional organizations have generally had an easier time with their political transition. Countries anchored by E.U. accession, such as Poland or the Czech Republic, used it to lock in political and economic reforms. In Turkey, even the potential of E.U. accession promoted market reforms and helped to restrain the military's political influence. Mexico's democratic transition was completed in the years following the 1993 North American Free Trade Agreement, while the Colombia-United States free trade agreement only opened markets after workers' rights in Colombia were protected.

Deeper economic integration is more effective in encouraging political and economic reforms because it brings new business opportunities and hence better jobs, expanding the constituency in favor of reform. While aid can support reform, it is also subject to capture or waste, especially when institutions are weak. In addition, countries offering market access and investment have more incentive to monitor and reward progress than international lenders.

The fate of Tunisia's democratic transition is not only vital for its 10 million citizens, it could have ripple effects across the Middle East. Research also shows that successful democratic transition offers a positive spillover to the region: The "third wave" of democratization, for example, spread first through southern Europe in the 1970s, then Latin America in the mid-1980s, and Eastern Europe starting in 1989. Just as protests spread from Tunisia to Egypt, Libya to Syria, and from Yemen to Bahrain, democratization may as well. One success in a region increases the likelihood that others in the region will ultimately achieve democracy as well.

While Tunisia's continued success rests primarily with the Tunisians and their leaders, outsiders can help. Three-quarters of Tunisia's exports go to the E.U., and the country is also strongly tied to Europe through investment and remittances. History shows that deeper integration -- ideally with a potential (even distant) for E.U. accession -- would be an unrivaled anchor for reform. Aid and technical assistance should also be available to support reform, but they are less likely to stimulate the type of economic transformation that can tip the political balance in any major way.

Among the many the challenges in the Middle East and North Africa, supporting Tunisia should be at the top of the list. Offering enhanced trade and investment treaties is the best way for the world to help it build on its recent successes.



Locked Out

Forget ethnic hatred, lack of sea access is the real reason South Sudan is tearing itself apart.

The Jan. 23 ceasefire agreement between rebels and the South Sudanese government may have pulled the world's youngest state back from the brink, but it's hardly out of the woods. Sporadic fighting continues on the ground and hundreds of thousands of displaced persons must now attempt to reconstitute their lives. President Salva Kiir's decision to charge former officials with plotting a coup, meanwhile, could easily derail the fragile peace agreement. As rebel leader Riek Machar, who called the allegations "baseless," hinted on Jan. 29, those who have been charged are "important in the peace process."

Looking back, various explanations have been offered for how South Sudan got into its present mess: The impetus for violence has been portrayed as ethnic, or tribal, or at the very least political. Other observers have linked the current crisis to the new state's unpreparedness for independence. But what if it is also geographic -- a partial product of isolation from the world's major commercial routes and the baseline level of prosperity they ensure? Viewed through such a lens, the recent reigniting of conflict in South Sudan -- and the country's continued struggle to maintain stable oil exports -- is indicative of the difficulties faced by many new countries that share certain geographical traits as landlocked states.

The portion of the globe covered by landlocked states is on the rise. Prior to the 20th century, the number of landlocked states was trivial -- 10 in all. By the end of World War II, the number had soared to 30. Of the 24 new states that have joined the United Nations since 1991, fully 60 percent are landlocked. Today, over one-fifth of the world's states have no direct access to the sea.

In recent decades, carving out new countries has become an increasingly common solution to protracted intra-state conflict; more often than not, such divisions have produced new states without coastal access. But while creating new states may solve immediate political problems, it tends to give rise to others. For one thing, landlocked states lag significantly behind their coastal counterparts in economic terms. Despite globalization and significant advances in transportation and communication technology, location still matters: Half of the 20 lowest scorers on the United Nation's Human Development Index are landlocked states.

In part, landlocked states struggle economically because of difficulties they face in accessing international markets. According to a research team led by Columbia University development economist Jeffrey Sachs, average per capita exports in landlocked states are equivalent to half the value of those of neighboring states with access to the sea. Likewise, Harvard economist Ricardo Hausmann has found that transport costs from landlocked states are 50 percent higher than from maritime states in most regions of the world. The higher costs derive, in part, from greater average distance to ports, as well as from the need to cross multiple borders, navigate customs, and pay tariffs -- not to mention bribes and illegal fines imposed by corrupt customs practices in the transit states. In addition, busy ports with limited capacity tend to give priority to their own state's trade, causing even longer delays for the trade of neighboring landlocked states. 

But it's not just about access to ports. Landlocked states also face greater governance and economic reform challenges than coastal states. Of all the new states to emerge from the former Soviet bloc, the landlocked ones possess the lowest indicators of political and market reform. They also have weaker links to NATO and the E.U., in part because of Russia's ability to use transit routes as leverage to keep these states firmly within its orbit.

Lack of access or limited access to the sea can be a source of conflict. Part of Iraq's calculation in invading Kuwait in 1990, for example, was Baghdad's desire to expand its sea coast, which at a little more than 16 miles long, is quite small for a major oil exporter. Similarly, Russia's interest in wresting control of the disputed region of Abkhazia from Georgia stemmed in part from the region's large sea coast. Following the Soviet breakup, Russia was left with limited sea access, especially in the winter when most of its ports are frozen and cannot accommodate oil tankers. Likewise, Bolivia cut natural gas flows to Argentina in 2004 -- causing a severe disruption of electricity in neighboring Chile -- in an attempt to coerce Santiago to negotiate the return of Bolivia's coastal access, lost to Chile during the War of the Pacific at the end of the 19th century.

Landlocked oil exporters face an additional set of challenges, particularly when they must rely on the state they split off from for transit. Since oil is generally a major source of revenue for the producing state, the transit state has tremendous leverage over its landlocked neighbor. Following the Soviet breakup, for example, Moscow has continually attempted to block, minimize, or control the transit of the oil and gas exports of former Soviet states, using various means -- ranging from supporting coup attempts to blowing up pipelines -- when producers in Central Asia attempted to build pipelines that circumvent transit through Russia.

And so it is for South Sudan, which has a long history of conflict with its northern neighbor. Making matters worse, some of the border disputes have not yet been resolved, with the oil producing regions of Bentiu and Malakal having changed hands multiple times in the post-independence period. Betting the survivability of South Sudan on its ability to cooperate with Khartoum, in other words, was an extremely risky thing to do.

So what can be done to mitigate the challenges faced by landlocked states? First, the international community should think long and hard before it establishes any new ones. In many cases, the minting of landlocked states provides only a temporary solution -- and conflict reignites down the road. When the creation of a new state is unavoidable, borders should be drawn such that both entities have sea access carved out. 

In addition, international legal treaties that govern the rights of transit, such as the U.N.'s Convention on Transit Trade of Land-locked States, need to be revised to accommodate existing landlocked states and to reflect today's modes of trade and transportation. The majority of these treaties and agreements were established in the early 20th century, and focus on ensuring the right of travel along railways and roads. Revisions in these treaties should reflect the need for access to airspace and seaports. Moreover, the security of transit for oil and natural gas pipelines should be guaranteed in these revised U.N. treaties. 

As the recent conflict in South Sudan demonstrates, establishing landlocked states that are dependent on the state they seceded from will most likely just kick the conflict down the road. Various U.S. administrations have vigorously supported the establishment of new landlocked states: President Barack Obama's personal support for the independence of South Sudan and President George W. Bush's push for recognition of Kosovo's independence, to cite two examples. But given the harsh realities faced by landlocked states, future administrations should be careful not to let good intentions get the best of them.