Crony Capitalism in the Middle East: Business and Politics from Liberalization to the Arab Spring

The popular uprisings in 2011 that overthrew Arab dictators were also a rebuke to crony capitalism, targeted against both rulers and their allied businessmen who had monopolize profitable economic opportunities. While the Middle East has witnessed a growing nexus between business and politics in the wake of economic liberalization, little is known about the nature of business cronies, the sectors in which they operate, the mechanisms used to favour them, and the possible impact of such crony relations on the region’s development. Combining inputs from leading scholars in the field, this volume presents a wealth of empirical evidence on the form and function of crony capitalism in the Middle East. The volume is unique in both its empirical focus and comparative scale. Analysis in individual chapters is empirically grounded, based on fine-grained data on the business activities of politically connected actors—furnishing, for the first time, information on the presence, numerical strength and activities of politically connected entrepreneurs. This volume also substantially enhances our understanding of the mechanisms used to privilege connected businesses, and their possible impact on undermining growth and job creation of firms in the Middle East. It offers a major advance on our prior knowledge of Middle Eastern political economy, and constitutes a distinct contribution to the global literature on crony capitalism and the politics of development. The book will be an essential resource for students, researchers, and policymakers alike.

Using an original database of 385 politically connected firms under the Mubarak regime in Egypt, this chapter documents that: (1) the value of these firms went down by 13–16 percent more than non-connected firms after Mubarak was removed from power; (2) crony firms enjoyed multiple regulatory and fiscal privileges that reduced competition; (3) these firms came to dominate the financial market; and (4) the entry of connected firms in a sector reduced employment growth in these sectors. The chapter ends by speculating that a specificity of Egyptian cronyism is that it is aimed to exclude firms that may support the political opposition, and that, as a result, it was prevalent in growth-oriented sectors. This implied that it was economically costlier to maintain in Egypt when compared to countries where the political functions of cronyism are narrower.