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The "Jasmine Revolution" that brought down Tunisian President Zine al-Abidine Ben Ali came as a shock. Tunisia's annual per capita income of $9,500 outstrips those of other North African countries. Its business schools attract students from its neighbors, and Tunisian women are among the least restricted in the region.
Scratch a little deeper, though, and the country has the same problems as the rest of North Africa and much of the Middle East. Tunisian unemployment is officially 14 percent. According to political scientist Azzedine Layachi of St. John's University in New York, the jobless figure may be 35 percent for youths. The economies of Tunisia and its neighbors— suffocatingly bureaucratic and dominated by the state—cannot create jobs for many of the 1 million or so university graduates and other young people coming onto the labor market each year.
As prices for commodities such as wheat rise, the decades-old practice of buying off the discontented with cheap bread and other subsidies is becoming unaffordable. Egypt already devotes 20 percent of its budget to subsidies for food and fuel. "Many of the governments in the region are going to be under pressure over the next few years," says Tarik Yousef, dean of the Dubai School of Government. The Arab economies must grow 6.5 percent per year to bring down unemployment, according to a recent International Monetary Fund study—about two percentage points higher than the region has achieved over the last decade.
Executives complain that overcrowded universities are not turning out graduates with useful skills. "Language and technology skills are a must in today's job market, but the public education systems are not providing these," says Fadi Ghandour, chief executive officer of Amman-based Aramex, the region's largest courier company. Large state companies that overpay their employees in unproductive operations hobble the economies of Egypt, Syria, and Jordan. In Egypt, new hires in the public sector are paid 46 percent more than private-sector counterparts, according to the IMF, while red tape discourages hiring. "In many countries, the private sector has been hamstrung by regulation and unable to take over the role of creating jobs," says Paul Gamble, head of research at Jadwa, a Saudi investment bank.
Tunisia during Ben Ali's 23-year rule actually had one of the better economic records. In the 1990s the country turned itself into a workshop for Europe. Over the last five years annual growth has averaged a respectable 4.7 percent. Then the 2009 slowdown in Spain and Italy hurt Tunisia, which sends 80 percent of its exports across the Mediterranean. Rachel Ziemba, a Roubini Global Economics analyst in London, says the focus on low-value-added activities such as textiles left Tunisia vulnerable to cheaper Asian competition. "An economy that was already anemic, unable to create jobs, suddenly dried up more," says Christopher Alexander, a Tunisia expert at Davidson College in Davidson, N.C.
The worsening economy, combined with repression and resentment of the corruption around President Ben Ali, set Tunisia up for a fall. The protests started when a 26-year-old fruit and vegetable seller, Mohamed Bouazizi, set fire to himself on Dec. 17 in the town of Sidi Bouzid after the authorities ruled his cart illegal. As with the 2009 protests in Iran, word of this harrowing event instantly ricocheted around the country via Twitter, blogs, and other digital media.
With one Arab regime down, others may be at risk. Riots over food prices have erupted in Algeria and Jordan, while sectarian protests have shaken Egypt after the bombing of a Coptic Christian church. "The risk of a spillover of Tunisia's crisis to the rest of the region is not negligible," said Barclays Capital (BCS) in a recent note.
Fear of being the next Tunisia may cause regimes to cancel reforms, worsening their problems over the long run. Jordan, where protesters want to oust Prime Minister Samir Rifai, has pledged $225 million to cut prices on food and fuel. Libya has followed suit. One worry, says Roubini's Ziemba, is that these increased welfare budgets will eventually lead to spending cuts in infrastructure.
While Egypt, the most populous Arab country, has pursued reforms to encourage foreign investment, it still suffers from the legacy of socialist inertia. With the successor to 82-year-old President Hosni Mubarak as yet undetermined, tensions are rising. "The people cannot live according to the same old model at a time when the regime is unable to fulfill the needs of its citizens," wrote Osama El-Ghazali Harb, an opposition leader, in the Al Masry Al Youm newspaper on Jan. 16.
Even oil-rich Saudi Arabia cannot create enough jobs for its youth. Unemployment among Saudis aged 20-24 is 43 percent, according to the government. Saudi businesses prefer to hire expatriates, mostly Asians, for a fraction of what they would need to pay locals. Wealthy Saudis profit by selling visas to expatriate workers, according to Mohammed Al-Qahtani, a Saudi dissident (the government threatens to fine and jail those who sell visas). "Our demographic circumstances are pretty much similar to Tunisia, with nearly 60 percent of our population under 25, failed education, no job opportunities, and no future," he says. An exaggeration, perhaps, but food for thought.
The bottom line: Tunisia's revolution highlights the region's economic fragility, especially in the vital area of youth employment.