the households could verify that the money had been deposited in their accounts, but were not allowed to withdraw them until 18 December when the price increases were announced. Consequently, the bad news about price increases coincided with the release of these stipends, and this timing strategy might have reduced initial anger. Furthermore, the government promised to increase the amount of per capita payments in the coming months. The 18 December price jumps were also complemented with a strong warning by the government that producers and retailers are not allowed to raise their prices. Several thousand inspectors were commissioned to monitor the prices of a vast range of commodities and services. While these price controls have partially benefited the consumers, they have put significant pressure on domestic producers, who have had to absorb the higher cost of energy and utilities without being able to pass on these costs to consumers. From an economic point of view, these price controls will have an adverse consequence, though they are politically expedient. The government is aware of the fact that this policy has led to bankruptcies and that it could increase the unemployment rate down the road—particularly since it comes after another populist policy of flooding the markets with imported consumer goods to appease consumers in 2009 and 2010. To address these problems, the government has offered some additional subsidies to producers and exporters in some industries and it is likely that the price controls will gradually be lifted. Third, aside from the prices of fuel, CNG and bread that were increased overnight, the price adjustments for several other items such as electricity, milk and water are being implemented with a two or three month delay. So the households have not yet been exposed to the much higher utility bills for water and electricity. Had these prices been raised at the same time as fuel, the risk of public unrest would have been higher. Surprisingly the removal of subsidies has not led to a reduction of government interference in economic activities. If anything, the government has increased its regulatory interference under the excuse of preventing profiteering and speculation during the adjustment period. It has not abandoned its pricing powers on key products to market forces either. Many essential products such as fuel, CNG and utilities remain under government control and, although the amount of price subsidies have decreased, the prices are still administratively determined and remain vulnerable to political and bureaucratic interference. For the time being, the new prices appear to be sustainable and there are already some indications that they have led to a reduction in consumption of fuel and other energy products. What the government has achieved so far remains less than ideal, but one has to acknowledge its partial success. Perhaps there are one or two useful lessons to be learned for other oil exporting countries looking at how Iran implemented these important price subsidy reforms. The Iranian economy still faces many formidable challenges, not the least of which is unemployment plus the adverse effects of international sanctions. While Iranians have accepted the price adjustments without much resistance, they are generally unhappy with economic conditions. Nader Habibi – Henry J. Leir Professor of the Economics of the Middle East at the Crown center for Middle East Studies at Brandeis University.
Issue 1563 • May 2011
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Arab Spring or Arab Hunger? Jane Harrigan, professor of Economics at The School of Oriental and African Studies (SOAS), gave a lecture at SOAS at the end of April entitled, "Did food Prices Plant the Seeds of the Arab Spring?" In it, she made a convincing argument linking the causes of the “Arab Spring” to rising food prices throughout the Middle East and North Africa (MENA) region. In the academic world, this would seem a somewhat obvious argument, but in the world of media, it is not and has hardly been touched upon. Instead, the media has engaged in a wholly political analysis of the events, which, when approached over time, say from 2007, in fact have a very solid economic dimension. Below is a short synopsis of Harrigan’s lecture. Food security and entitlements of food refer to the availability, accessibility and affordability of food. MENA countries comprise the most food insecure region of the world. Together, 50 percent of these countries’ food supply is imported due to a major internal food deficit and lack of water, whereby each country’s food requirements exceed the its national production of food by 50 percent. Therefore, when the global food market prices shift, these countries experience severe food shortages. Another factor affecting food security is the political relationships the importing country has with the exporting country. This means that the MENA countries must be on good terms with major food exporting countries like the US, Canada, Australia, Argentina, and the EU, which, for example, account for ¾ of all the world’s traded cereals. Professor Harrigan points out that in 2007-2008, and again in 2010-2011 there were huge increases in international food prices. The causes, according to analysts, are climate change, higher incomes, growth in speculative trading in food markets, the banning of exports in times of shortage, and other structural reasons. All of these factors will continue to exist, making the current situation long-term. Without sufficient food, poverty increases and so does inflation—driven by high food prices. For example, the poor in the MENA region spend “a staggering” 6575 percent of their income on food, while the middle class in Egypt spend over 40 percent of their take home income on food. In turn, we have witnessed political instability throughout the region, i.e. food demonstrations and riots in 2007 and 2008 in Bahrain, Jordan, Egypt, Lebanon, Morocco, Saudi Arabia and Yemen. In January 2011, just prior to Tunisia’s Zine ElAbidine Ben Ali’s flight from the country, there were food riots in Jordan and Algeria. “It is not a coincidence that these same countries are experiencing unrest today,” Professor Harrigan told her audience. Her conclusion: Economic pressures have triggered the Arab Spring. People are fed up with their leaders’ inability to provide food, social services and to mitigate poverty.
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