Mediterranean Paper Series 2010

RACING against time: reform in north africa

and transatlantic strategies

J. Scott Carpenter
Washington Institute for Near East Policy
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 Racing Against Time:
Reform in North Africa and
Transatlantic Strategies

Mediterranean Paper Series

July 2010

J. Scott Carpenter*
Washington Institute for Near East Policy

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Economic reform:A Race Against Time? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Political Reform: Moving at a Snail’s Pace . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Toward a Transatlantic Response? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

* J. Scott Carpenter is a Keston Family fellow and director of Project Fikra at the Washington Institute for Near East Policy.
Previously Mr. Carpenter served as deputy assistant secretary of state in the Bureau of Near East Affairs from 2004–2007.
Summary
With the Obama administration’s foreign policy
team preoccupied with a deteriorating situation
in Afghanistan, a dead-locked Palestinian-
Israeli peace process, and a recalcitrant Iran
determined to have nuclear weapons, it
would seem an odd time to encourage a more
energetic U.S. policy toward Europe and North
Africa. And yet, such a policy could yield
significant results with relatively few inputs.
Perceived by most U.S. policymakers as a
comparatively problem free area, North Africa
has been historically ignored by the United
States, which has seen it as more naturally
Europe’s “backyard.” Only after 9/11, in fact, did
the United States pay any real attention to the
growing structural risks associated with the region
as a whole, developing bilateral, regional, and
multilateral frameworks of various seriousness to
address the challenges it subsequently perceived.
North Africa, however, remained only a small part
of the broader Middle East, and was not prioritized
as a critical sub-region.
For the European Union the situation was precisely
reversed. Priority was given to the countries on the
EU’s Mediterranean border. In 1995, the European
Union launched the Barcelona Process designed to
redress deep economic and social challenges that
risked negatively impacting European security.
Ten years later the European Union recognized
some successes to the approach but concluded that
the regional approach had largely not produced
anything similar to the extraordinary achievements
in the east. Its subsequent policy response has been
an extension of the European Neighborhood Policy
to North Africa, in many ways recognition that
a bilateral approach may offer bigger payoffs. In
2007, yet another policy overlay, the Union of the
Mediterranean, was advanced by French President
Nicolas Sarkozy and later incorporated into the
Barcelona framework at German insistence. The
Union of the Mediterranean’s impact, however, has
yet to be felt.
Reform in North Africa and Transatlantic Strategies
Today, European and U.S. policy toward the
region remains diffuse, fragmented, and largely
uncoordinated. Each sees the region through its
own prism and neither has had the diplomatic
energy to redress root causes of persistent economic
and political pathology. And yet, four countries
of North Africa — Morocco, Algeria, Libya, and
Tunisia — together represent an opportunity for
the United States and Europe to collaborate with
the governments, their respective peoples and each
other to deepen on-going economic reform and
secure those reforms through better, and hopefully
more democratic governance. Alternatively,
permitting the status quo to persist risks allowing
a growing legitimacy crisis in each to torpedo
inchoate reform and metastasize into full-blown
instability, most likely through labor unrest, with
profound consequences for the United States and its
European partners.
This paper explores recent economic and political
developments in each of the four countries and the
mechanisms by which the transatlantic community
has sought to channel social, political, and economic
change in them — for both good and ill. It then
offers recommendations to strengthen U.S.
engagement with Europe to help secure positive
economic and governance trends.
Racing Against Time:
3
1 Introduction
For most U.S. and European policymakers,
Morocco, Tunisia, Algeria, and Libya collectively
convey a glass half full story. When compared
to the profound challenges confronting the
international community in Iraq, Afghanistan,
Palestine, Pakistan, and Yemen, to name just a few,
the challenges of North Africa1 pale in comparison,
dulling any sense of urgency in confronting its
problems.
The fog of lethargy and violence that seemed to
blanket the region in the 1980s and 1990s has
clearly begun to lift. Algeria’s bloody civil war has
ended. Libya is slowly emerging from its decades-
long coma. Together, Algeria and Libya have
proven oil reserves equivalent to 4.6 percent of the
global total or nearly 61.5 billion barrels, of which
Libya alone holds two-thirds. Algeria remains
the largest exporter of natural gas with unknown
potential. The recent opening of both countries to
major international oil companies promises to help
Europe diversify its energy supplies away from its
current dependency on Russia while at the same
time providing significant resources for investment
in human capital.
All four countries have experienced modest yet
significant economic growth in recent years as
varying degrees of economic reform coupled with
a wave of globalization and a surge in oil prices has
raised all boats. From 2003 to 2008, average growth
rates exceeded 5.6 percent. While far slower than
in the economies of East Asia this trend represents
solid growth. Apart from a late year spike in 2008,
inflation rates have been falling in all four countries
as has the ratio of debt to GDP.
Trade has been an important driver of growth.
Morocco has a free trade agreement with the
United States and all have negotiated or are in
the process of negotiating Trade Investment
1 
For the purposes of this article, North Africa will refer to the
four countries of Algeria, Libya, Morocco, and Tunisia.
4 The German Marshall Fund of the United States
Framework Agreements (TIFA) with the United
States. Algeria and Morocco both have negotiated
association agreements with the European Union
that will lead to open markets by 2012. Libya,
emerging from its international isolation has
applied for World Trade Organization (WTO)
membership.
Together the four countries comprise a potential
market of approximately 82 million people with
access to markets in both West and sub-Saharan
Africa. All have young populations that represent
a huge reservoir of potential human capital.
Moreover, three of the four countries look as much
west and north for models of emulation as they
look east. Both Morocco and Tunisia participate
in NATO’s Mediterranean Dialogue and routinely
participate in joint exercises. All four cooperate
actively with the United States and Europe on
counterterrorism efforts and intelligence sharing.
Morocco has played host to numerous international
meetings on reform in the Arab world and again
hosted the Forum for the Future in 2009, the
signature meeting of the G8’s Broader Middle East
and North Africa Initiative. Not insignificantly, the
pathologies associated with the Palestinian-Israeli
conflict are geographically remote, even if they
exert some political influence.
These positive aspects of the region are
counterbalanced, however, by serious, persistent
challenges. In the two most populous countries,
Morocco and Algeria, illiteracy remains stubbornly
high, exceeding 50 percent and 70 percent,
respectively. Among women the rates are even
higher. Despite recent economic growth, poverty
remains a serious problem in both countries as well.
Morocco’s annual per capita income barely exceeds
$4,000 and 20 percent of the population lives
below the poverty line. High unemployment and
underemployment rates plague each country. At
the high end of the spectrum is Algeria with urban
unemployment rates in excess of 30 percent.
Especially problematic are even higher rates of
youth unemployment across the region. The state
sectors continue to play a dominant role in the
economy, providing patronage and jobs. Libya’s
government, for instance, provides 60 percent of
all jobs in the country. Hydrocarbon-rich Libya
and Algeria remain largely dependent on the price
of oil for their macroeconomic stability. The more
diversified economies of Morocco and Tunisia
meanwhile are linked — for better and worse — to
the business cycle in Europe with whom they do
the vast majority of their trade.
The on-going, if static, conflict over the Western
Sahara remains a serious barrier to regional
integration. The border between Algeria and
Morocco has remained closed since 1994
frustrating Algerian and Moroccan business
entrepreneurs and transatlantic policymakers alike.
Islamic radicalism and the terrorism associated
with it remain a threat to regional progress,
especially as investment in education fails to keep
pace with demand. All countries have experienced
a recent up-tick in terrorist attacks. Perhaps not
surprisingly, Algeria, in particular, has seen al
Qaeda in the Maghreb become increasingly bold
after a period of relative quiescence. Even Tunisia
whose government has justified years of repression
by promising its people security saw a spate of
planned attacks in 2006 and 2007 that resulted in
gun battles that shocked the nation as well as U.S.
diplomats.2
By far, the most serious challenge to the
governments — and the rationale for more
concerted attention from the transatlantic
The most serious
community — has been the slow evolution of
challenge
political institutions, resulting in a growing
legitimacy deficit that threatens to derail economic
has been the
slow evolution
reform and widen the cracks in the social-contracts
that emerged when these countries gained their of political
independence. According to Freedom House and a institutions
host of other indicators, (see Table 1), governance resulting in a
in each country is plagued by myriad ills. Only growing legitimacy
Morocco rates a partly-free rating. The precipitous deficit that
deterioration of public participation in electoral threatens to derail
processes testifies to the growing chasm between economic reform.
the governing and the governed. Within the next
ten years, moreover, succession crises face Algeria,
Libya, and Tunisia where aging leadership and
the lack of clear succession plans add to political
uncertainty. In October 2009, Tunisia’s president
for life, Ben Ali, age 73, won a fifth consecutive
2 
“Tunisia: ‘Terrorists’ had embassies’ blueprints,” http://www.
msnbc.msn.com/id/16596319/from/RS.2/; interviews with State
Department officials.

Table 1. Freedom Indicators in 1998 and 2008

World Bank Voice Index of Economic
Freedom House*
and Accountability** Freedom***

1998 2008 1998 2008 1998 2008

Algeria 5.5 5.5 –1.37 –1.05 55.8 56.2

Libya 7 7 –1.60 –1.90 32 37

Morocco 4.5 4.5 –0.22 –0.70 61.1 55.6

Tunisia 5.5 6.0 –0.76 –1.26 63.9 60.1

* Average of political and civil liberties scores; 1 is most free, 7 least free; source: Freedom in the World 2008,
Freedom House
** Number of standard deviations from average, so that nearly all countries fall between –2.5 to 2.5; source: World Bank
Governance Matters 2009
*** The Heritage Foundation Index of Economic Freedom; 1 to 100, with 100 the most free

Racing Against Time:

5
Reform in North Africa and Transatlantic Strategies
 term with a predictably high 90 percent of the vote,
but cannot run again unless he again changes the
constitution.3 Outside of Morocco, therefore, an
aging leadership, out of touch with its people and
lacking vision, plagues each of the countries.
Without deeper political, if not democratic, reforms
Without deeper to accompany and fuel on-going economic reform
political, if not the prospects for serious instability in the region
grow. Algeria risks returning to the nightmare
democratic,
days of its lost decade from which it has only
reforms to
recently awoken. Tunisia risks its ability to build
accompany and
on the precious gains it has made in economic
fuel on-going and social development. Libya risks squandering
economic reform the opportunity to integrate into the community
the prospects of of nations its recent opening to the rest of the
serious instability world created. Morocco, the West’s darling when
in the region grow. it comes to progressive, evolutionary change,
risks seeing its experiment swept away on a tide
of rising expectations it cannot meet. Although
3 
“Tunisian President in Fifth Win,”10/26/09, http://news.bbc.
co.uk/2/hi/africa/8325378.stm; the constitution currently states
no one over the age of 75 can run for president. Ben Ali will be
78 at the time of the next election.
6 The German Marshall Fund of the United States
most fear the rise of Islamist oppositions, it is at
least as likely that general labor unrest, perhaps
in conjunction with Islamist agitation, will be the
transmission mechanism for widespread instability.
As governments tackle the most politically difficult
reforms — subsidy reform and deeper privatization —
the dangers will grow, especially as reform in
these areas touches on the core elements of regime
patronage and hence survival.
Should any of these worst case scenarios come
to pass, the consequences for Europe and the
United States would be grave, especially in terms
of migration, radicalization, and the vast increase
in ungoverned territory in which al Qaeda and
other extremist groups thrive. On the other
hand, a modest yet concerted effort to engage the
governments and peoples of the four countries by
the West could yield substantial benefits and turn a
possible vicious circle into a virtuous one. A review
and assessment of trends in both economic and
political progress within each country suggests how
this might be done.
2 Economic reform:
A Race Against Time?
Since the late 1990s, each country in the region —
even Libya, which emerged from its cocoon in
2003–04 — has embarked on a path of economic
reform, principally as a regime preservation
strategy. At a macroeconomic level these reforms
have had bite and earned the plaudits of the United
States and Europe as well as the World Bank and
International Monetary Fund (IMF).4 However, the
sluggishness, even failure, of the reforms to increase
the average citizen’s sense of well-being has added
to demographic challenges increasing internal
pressures on the regimes. Whether the macro gains
can trickle down fast enough to prevent broad
social and labor unrest is one of the key questions
that linger over the region. Without deeper political
reform in Morocco and Tunisia economic reforms
may stall out. In Libya and Algeria, where political
vision is in shorter supply, the absence of a clear
political direction risks dooming structural reform
before it gets solidly underway.
Libya: The Transitioner
Libya’s economic story, while currently promising,
is the shortest to tell. During the rule of Colonel
Qadafi, Libya’s small, educated population was
cut off from the rest of the world over time. The
stunning growth of the 1960s and 1970s was
replaced with stultification and sharp contraction
in the 1980s and 1990s. Its socialist orientation
meant the government dominated every sector
of an economy that was and remains heavily
dependent on the oil sector. While literacy rates
in Libya remain comparatively healthy, the
government disinvested in education that in the
rest of the world was creating skills for the 20th and
21st centuries.
Since Libya’s decision to rejoin the international
community in 2003 and the subsequent lifting of
UN sanctions, Libya has embarked on an ambitious
4 
Economic statistics listed throughout this section come from
the World Bank and IMF for the latest year, 2008, unless other-
wise indicated.
Reform in North Africa and Transatlantic Strategies
if disjointed macroeconomic reform program,
particularly in the financial sector. These reforms
have won praise from the IMF and others. During
its most recent consultation with Tripoli, the IMF
welcomed in particular the ongoing modernization
of the central bank, advances in bank privatization,
and the assignment of an asset management
company to handle bad loans. Financial sector During the
reform, at least, has been going moderately well.5 rule of Colonel
Qadafi, Libya’s
Libya has also succeeded in beginning the process
of diversifying its economy away from oil. Revenues small, educated
derived from hydrocarbons continue to make up population was
nearly 60 percent of Libya’s GDP, but non-oil sector cut off from the
growth has remained healthy, despite drop offs rest of the world
from double digit growth from an admittedly small over time.
base in the early and mid 2000s. However, exports
from the non-oil sector remain pitifully small
compared with petroleum exports, accounting for
only 2 percent of exports in 2008.
As long as oil prices remain relatively healthy, Libya’s
medium-term prospects for continued economic
stability remain solid. Growth rates have averaged
6.5 percent per year since 2005 and despite the global
recession Libya is expected to experience growth in
2009. Its strong fiscal surplus (25 percent of GDP)
reassures the regime it can continue to meet the
basic needs of its people while the inflow of Western
technology to modernize and increase oil production
— despite recent OPEC decisions to cut quotas —
will guarantee out-year revenue.
Governance, however, will play an increasingly
important role going forward. Libya’s public
financial management systems, for instance,
remain extremely weak and are crucially in need
of reform. In the words of the IMF, “modernizing
the budget’s legal and administrative framework
to reduce extra-budgetary funds would enhance
5 
IMF Executive Board Concludes 2009 Article IV Consultation
with the Socialist People’s Libyan Arab Jamahiriya, Public
Information Notice (PIN) No. 09/121, September 21, 2009,
http://www.imf.org/external/np/sec/pn/2009/pn09121.htm
Racing Against Time:
7
 budget transparency and effectiveness.”6 This
is a polite way of saying that as long as huge
swaths of income and expenditure remain off
the books, corruption will continue to threaten
the health of Libya’s economic reforms. In 2009,
Libya fell four places to 130 out of 180 countries
on Transparency International’s sliding scale of
As long as huge perceived corruption.7 The World Bank does
swaths of income not even include Libya in its annual “Doing
and expenditure Business” survey, which ranks countries in the
remain off the world on the ease of doing business.8 Bribery
books, corruption remains a fact of life for foreign businesses as
will continue well as the average citizen seeking services.
to threaten the Tunisia: The Liberalizer
health of Libya’s
economic reforms. Tunisia, Libya’s neighbor to the east, presents
Tunisia, ranks a stunning contrast to the Jamahiriya Republic
ahead of one of economically. Since an international balance of
payments crisis in the mid 1980s, this previously
its main trade
state-directed economy has been on a path of
partners, Italy, in
structural reform that has made it a model not
terms of overall
only for North Africa but the rest of the region and
competitiveness. beyond. Today, Tunisia is not only the healthiest
economy in North Africa but also ranks ahead of
one of its main trade partners, Italy, in terms of
overall competitiveness.9 Because of these reforms
— and despite the current global slowdown —
the IMF projects Tunisia to weather the current
economic slowdown the best of all countries in
North Africa.
Tunisia’s comparative economic strength stems
in large measure from its long-term commitment
6 
Ibid
7 
Corruption Perception Index (CPI) 2009, http://www.
transparency.org/policy_research/surveys_indices/cpi/2009
8 
Doing Business 2010 report, World Bank, http://www.
doingbusiness.org/economyrankings/
9 
“The Global Competitiveness Report, 2009–2010,” World
Economic Forum, full-rankings, http://www.weforum.org/pdf/
GCR09/GCR20092010fullrankings.pdf
8 The German Marshall Fund of the United States
to macroeconomic reform that began in the late
1980s and has included, among other things,
strengthening the financial sector, diversifying
its economy and committing itself to free trade,
especially with Europe. Despite 20 percent of
the population continuing to work in the under-
producing agricultural sector, Tunisia has developed
tourist, textile, chemical, and car manufacturing
industries that have attracted a great deal of foreign
direct investment and proved remarkably flexible. In
textiles, for instance, Tunisia has so far successfully
survived the end of the WTO agreement on textiles
and clothing in 2004 by specializing in design. Its
automotive industry has successfully made the jump
to regional transshipment that now accounts for a
fifth of its exports.10
These sectors’ strengths, however, are highly
correlated to Europe’s business cycle, particularly
to the economies of France and Italy, its largest
trading partners. As the European economies cool
each sector is expected to contract. Another core
component of the Tunisian economy, remittances
from its expatriates living in Europe, is expected
to shrink for the same reason. Tunisia’s lack of
refinery capacity also means it remains dependent
on refined petroleum to fuel its economy, adding
to import costs. Nonetheless, Tunisia’s overall fiscal
position remains strong. As of May 2009, it held
approximately $9 billion in reserves and is expected
to grow at 3.3 percent in 2009 and even more
strongly in 2010, according to the IMF.11
In addition to macroeconomic progress, Tunisia
has done a better job than the other three
countries at creating a growing middle class
10 
“Tunisia: Europe’s northern most African neighbour riding
out the financial crisis,” http://www.dbresearch.com/PROD/
DBR_INTERNET_DE-PROD/PROD0000000000238309.pdf
11 
“Statement of the IMF Mission on the 2009 Article IV Con-
sultation with Tunisia,” Press Release No. 09/239, June 29, 2009,
http://www.imf.org/external/np/sec/pr/2009/pr09239.htm
and a comparatively favorable environment for
the private sector. Poverty rates in the country
have been in decline for decades and the United
Nations predicts Tunisia will meet its Millennium
Challenge Goal of reducing it further to 1.5 percent
by 2015.12 According to Tunisia’s National Institute
of Statistics, it has a large middle class, by some
estimates 70 percent of the population. Eighty
percent own their own homes while 90 percent own
televisions. The World Bank ranks Tunisia eighth in
its “Doing Business” survey among the 19 countries
of the Middle East and North Africa. Moreover,
Tunisia has committed 20 percent or more of its
budget to education over a sustained period of
time, reaping the benefits that a slew of indices
capture. The UN Human Development index ranks
Tunisia 80th out of 182 countries in the area of
education enrollment.13 The Legatum Institute’s
more nuanced Prosperity Index gives Tunisia a
rating of 50 out of 104 countries on education, the
highest in all of the Middle East and North Africa
after the UAE and Kuwait.14
Still, a number of challenges lurk. Unemployment,
officially at 14.2 percent nationwide, masks
higher unemployment in some parts of the
country and does not take into consideration
under employment. Fifty-five to 60 percent of
youth are under 25 years of age and pressures for
both university educations and the jobs expected
to flow from them are rising. In addition, the
state continues to direct too many resources,
especially in the tourism industry, which has seen
a rising number of bad loans. Official corruption,
12 
“Poverty rate down, middle class growing in Tunisia,”
http://www.magharebia.com/cocoon/awi/xhtml1/en_GB/
features/awi/features/2007/07/27/feature-01
13 
UN Human Development Report, 2009, Tunisia,
http://hdrstats.undp.org/en/countries/country_fact_sheets/
cty_fs_TUN.html
14 
The Legatum Prosperity Index, 2009, Tunisia,
http://www.prosperity.com/country.aspx?id=TS
Reform in North Africa and Transatlantic Strategies
meanwhile, remains a problem, though not as
profound a problem as elsewhere in the region.
Transparency International ranks Tunisia 65th in
the world in 2009 and 8 amongst its 19 peers in
the Middle East. On the whole, however, Tunisia’s
economic reforms have secured a relatively
prosperous future for the majority, including
women who make up 20 percent of the work force. Fifty-five to 60
Still, as noted particularly in Legatum’s Prosperity percent of youth
Index, the one deficit in Tunisia’s otherwise are under 25
respectable reform record remains the deepening years of age and
perception of its people that they lack political
pressures for
and civil liberties and a means to impact their
both university
government, a point addressed later in this paper.
educations and
Algeria: The Statist the jobs expected
to flow from them
If both Libya and Tunisia are at varying speeds
are rising. Algeria,
opening to the world and deepening their
the most populous
structural reform efforts, Algeria, the most
populous country in the sub-region, remains mired
country in the sub-
region, remains
in its statist past and addicted to its oil revenues.
mired in its statist
The recent economic downturn and collapse of oil
prices has made accelerated structural reform a past and addicted
critical imperative, even if Algeria is not at risk of to its oil revenues.
immediate instability.
Depending on how one looks at it, Algeria was
blessed or cursed by the surge in oil prices that
skyrocketed in 2007–2008. The high revenues
allowed Algiers to avoid making difficult
policy choices,15 but contributed to a stable
macroeconomic picture that is sustainable as
long as oil prices rebound in the medium term.
According to the IMF, growth in the non-
hydrocarbon sector has been holding strong at
roughly 5.5 percent over the past eight years, again
from a very small base. Youth unemployment has
been sharply reduced from 50 percent in 2001
to a still dangerously high 30 percent plus today.
15 
“It was amazing how quickly discussion of deepening eco-
nomic reform evaporated with the rise in oil prices,” a former
senior State Department official told the author in an interview.
Racing Against Time:
9
 Overall unemployment hovers around 15 percent,
officially. The inflation rate is among the lowest in
the region and what inflation there was in 2008 was
attributed to sharp increases in food costs. Soaring
oil revenues have allowed Algeria to eliminate its
foreign debt even while maintaining a large public
investment program that is supposedly directed at
A slew of capital infrastructure and education. So much for
indicators the qualified good news.
reveal the ugly
A slew of indicators reveal the ugly underbelly of
underbelly of the
the Algerian economy and the costs of putting off
Algerian economy
structural reform. A look at the country’s exports
and the costs indicates that Algeria is tied with Libya as the least
of putting off diversified of any oil-producing nation in the world
structural reform. with 98 percent derived from the hydrocarbon
When it comes to sector, higher even than Iran.
financial market
sophistication, Algeria’s attitude toward foreign investment has
improved of late but in the past has bordered on
only one country,
the xenophobic. Portfolio investment remains
Burundi, ranked
unwelcome and foreign ownership, although
worse and, in FDI
encouraged, is limited to joint-ventures in the
and technology hydrocarbon sector and one or two other small
transfer, it came sectors. All banks, except for two, remain under
in dead last. state supervision and control 95 percent of banking
assets. (Because they continue to make loans to
state-owned enterprises, the percent of bad loans,
defined as non-performing loans or those at risk,
are approaching 50 percent all loans made.) This
attitude may have limited the contagion of the
global financial crisis but it also keeps Algeria from
balancing its growth and allowing a greater role
for the private sector that remains pitifully small.
Foreign direct investment in Algeria remains the
lowest in the region, measuring a measly 1 percent
of GDP on average over the past eight years — and
that was before the global crisis set in.16
16 
“Algeria: 2008 Article IV Consultation — Staff Report,”
April 29, 2009, http://www.imf.org/external/pubs/ft/scr/2009/
cr09108.pdf
10 The German Marshall Fund of the United States
Competitiveness indices tell an even gloomier story.
The World Economic Forum’s 2009–2010 Global
Competitiveness report assigns Algeria a rank of 83
out of 133 countries. Although significantly better
than its rank of 99 the previous year, the weight
given to macroeconomic stability in the index
(where Algeria was ranked second in the world)
masks serious underlying challenges. Its goods
and labor markets efficiency are ranked among
the absolute worst in the world, 126 and 127,
respectively. When it comes to financial market
sophistication, only one country, Burundi, ranked
worse and, in FDI and technology transfer, it came
in dead last. The Doing Business survey tells a
similar story where Algeria has slipped two places
to 136 out of 183 economies in 2009. Algeria’s
productivity has also seen sharp decline, dropping
near 40 percent since 2002 when compared to its
trading partners.
These economic statistics fail to capture the
challenges of social capital formation that plague
the country. Its primary education system is
abysmal and illiteracy rates remain startling high
for a country of its wealth. Although the state
has done a lot to reduce poverty since the end
of the “lost decade,” it too persists at shocking
levels given Algeria’s income level. The United
Nations Development Programme’s (UNDP)
Human Poverty Index ranks Algeria 71st among
135 developing countries, for instance. Algeria’s
conservative management of its oil profits has
created time and space for deeper reforms but so
far, in classic IMF understatement, that effort has
remained “timid.”17
17 
http://www.imf.org/external/pubs/ft/scr/2009/cr09108.pdf
Morocco: The Darling of the West
Morocco remains a poor country, heavily dependent
on agriculture for employment and European
markets for trade. On most international indices
measuring human development and economic
competitiveness, Morocco comes ahead of only one
or two of its neighbors in the Middle East and North
Africa region, Algeria and Yemen. The UNDP ranks
Morocco in the bottom third of countries on its
Human Development Index, where it places 130th
out of 182 countries. Its rank on the Human Poverty
Index is worse. Out of 135 developing countries it
is ranked 96, the second annual deterioration on
this index.18 Yet despite these below-average general
descriptors, the IMF concludes that the Kingdom
is doing almost everything right when it comes to
macroeconomic policy.19
According to the IMF, Morocco’s sound monetary
and fiscal policies position it well for out-year
growth, depending on the volatility of the
agricultural sector, which has experienced recent
drought. The financial sector remains sound. Its
fiscal position has improved drastically as tax
reform, particularly of the VAT, has led to a surge
in collected revenues. Morocco has also seen
benefits from an openness to trade that has helped
to diversify the economy away from agriculture.
Services, particularly tourism, now contribute
nearly 60 percent of GDP, a testimony to the success
of the king’s “Vision 2010” launched in 2001. Still,
the Moroccan economy remains dangerously
committed to the agricultural sector. Although it
contributes only 14 percent to the Kingdom’s GDP,
almost half of the population works in the sector.
18 
UNDP Human Development Report, 2009, Morocco,
http://hdrstats.undp.org/en/countries/country_fact_sheets/
cty_fs_MAR.html
19 
“Morocco: 2008 Article IV Consultation — Staff Report,”
September 2008, http://www.imf.org/external/pubs/ft/scr/2008/
cr08304.pdf
Reform in North Africa and Transatlantic Strategies
Moreover, jobs in the services sector are low-paying
and precarious.
One key drag on the Moroccan economy stems
from its nearly complete dependence on energy
imports, something it has done little to redress. In
2007, Rabat announced a deal with France to build
a nuclear plant, but since then there has been little
On most
evidence of progress.20 As a consequence, when oil
international
prices climb, the subsidies the Kingdom provides
also soar. With the surge in prices in 2007–2008,
indices
subsidy costs rose from 2 to 5 percent of GDP, measuring human
though have likely fallen back since then. development
and economic
In short, Morocco is a country necessarily in a competitiveness,
hurry. Since 2000, the government has issued Morocco comes
national plans for a host of sectors including ahead of only
everything from tourism to banking reform and
one or two of
privatization to tax reform and education. In
its neighbors in
each area it has met numerous goals but the gaps
as revealed by UNDP indicators remain large.
the Middle East
Tackling subsidies, modernizing agriculture, and and North Africa
doing more in education remain unfinished tasks. region, Algeria and
Yemen. Although
A Net Assessment it contributes
These macroeconomic developments across North only 14 percent
Africa can essentially be summarized as follows: In to the Kingdom’s
each of the four countries, the governments are, to GDP, almost half
varying degrees, coming to terms with the need to of the population
create modern economies that provide jobs for their works in the
young people and secure regime survival. All are in sector. Morocco
a race against time and demography to make this is a country
happen, and all are, for the moment, succeeding in necessarily
keeping their fingers in the dike. Those with oil —
in a hurry.
Libya and Algeria — have been able to postpone
difficult policy choices. Morocco and Tunisia, both
of which have little to no oil, have not. Tunisia, in
particular, is further along than the others in almost
all sectors. Together, however, they have failed to
take advantage of regional specialization, and all
20 
“France Seals Nuclear Deal with Morocco,” http://www.mg.co.
za/article/2007-10-24-france-seals-nuclear-deal-with-morocco
Racing Against Time:
11
 trade a great deal more with Europe than with one
another. (see Table 2) Youth unemployment in each
country remains perilously high and expectations
among the population as a whole are rising.
Apart from Tunisia, income disparities between
the “haves and have nots” are stoking simmering
Income disparities social tensions created by the reform process. In
between the each country, the elites have disproportionately
benefited from the economic reform processes
“haves and
and the perception, if not always the reality, of
have nots” are
official corruption has remained high. There has
stoking simmering
been little, if any, trickle down. The financial crisis
social tensions
created by the
Table 2. Intra-Maghreb vs. Maghreb-EU trade in billions of dollars
reform process.
Trade with EU
and global recession that began in late 2008 from
which the world is only slowly emerging from has
had mixed impact, especially on Morocco and
Tunisia. As the prices of wheat and oil collapsed
Morocco’s subsidies became less of a drag on the
overall economy. The European recession, however,
will likely deepen the economic slowdown in
both countries. If each of the countries is in a race
against time to get their macroeconomic houses
in order, the will to accelerate political reform is
practically non-existent. The individual country’s
political “dynamics” are considered next.
Trade with Maghreb

2000 2008 2000 2008

Algeria $20.70 $62.68 $0.34 $2.17

Libya $14.58 $59.99 $0.74 $2.50

Mauritania $0.70 $2.00 $0.03 $0.09

Morocco $12.49 $35.85 $0.44 $1.44

Tunisia $11.37 $20.21 $0.84 $3.85

Total $59.84 $180.73 $2.38 $10.05

Source: Direction of Trade Statistics, International Monetary Fund; 2009, 2005

12 The German Marshall Fund of the United States

3 Political Reform:
Moving at a Snail’s Pace
Algeria, Tunisia, and Libya — and Morocco to
a more limited extent — have sought to pursue
economic reform without democratizing. Today,
however, a shrinking group of elites is becoming
dangerously disconnected from their people
leading to a growing, if varied, legitimacy crisis
in each. Individuals and groups are abandoning
“shell democracy” for alternative forms of
social expression creating a potentially perilous
disconnect between the governing and the
governed. This may facilitate an authoritarian
government’s ability to press forward with deeper
economic reform in the short term but may cause
broad, if episodic, unrest. The lack of democratic
legitimacy and hence a broad-based constituency
for reform may also imperil the prospects of
pushing the process forward by tempting leaders to
accommodate strikers and put off critical subsidy
and legal reforms.
If Morocco has received the most praise for its
efforts to reform the economy, the monarchy
has also impressed observers with steps taken so
far to open its political system. Though far from
being the model democracy some claim for it,
Morocco remains the only country in North Africa
considered “partly free” by Freedom House in its
annual survey of political rights and civil liberties
around the world, but just barely.21
On the death of his father King Hassan II in 1999,
Mohamed VI launched a series of incremental
political reforms that sought to modernize
Morocco’s political system and devolve power
away from the palace. In the ten years since then,
Morocco has witnessed its first reasonably open
21 
Freedom House gives every country it evaluates two
scores, one for political rights and one for civil rights. In
each, a score of one is the highest degree of freedom while
a score of seven is the least. In 2008, Morocco failed to
budge its score of five in the area of political rights but
continued to do moderately better in the areas of civil
liberties where it has scored a four for the past three years.
Reform in North Africa and Transatlantic Strategies
elections, the establishment of a vibrant press, a
legal environment that has led to the formation
of numerous non-governmental organizations,
including free trade unions, greater religious
freedom, and the legal participation of one of
the largest Islamist political parties in the region.
Following successful elections in 2002, the
government passed a revolutionary family code Today, a shrinking
designed to empower women and instituted the group of elites
Equity and Reconciliation Commission (EIR), is becoming
the most advanced reconciliation process for dangerously
addressing the abuses of the past of any country in
disconnected
the Arab world.
from their people
Yet, the palace’s incremental reforms, however leading to a
broad, have not been very deep and there has been growing, if varied,
a marked slowdown, even reversal in some of these legitimacy crisis
key areas in recent years. There has been a sharp in each country.
drop off in journalistic freedom, for instance. Since
the submission of the EIR’s final report, moreover,
few of the structural reforms recommended have
been implemented, and human rights abuses
persist, though at a lower level than in the past.22
The palace’s commitment to devolution of real
power has been fundamentally put into question.
As Freedom House concludes in its overview to
this year’s report, “[f]rom all indications, it seems
doubtful that authorities plan to make significant
institutional reform.”23
A key indicator in evaluating the palace’s
commitment to moving forward will be the degree
to which the palace devolves real power to the
parliament in coming years. Today, Morocco’s
parliament remains a toothless institution with little
ability to affect government policy. Opposition is
largely proforma and the 2007 victory of Istiqlal
(Independence Party) reinforced the impression
22 
Interview with State Department officials, October 2009.
23 
“Freedom in the World, 2009, Morocco,” Freedom House,
http://www.freedomhouse.org/template.cfm?page=22&year=20
09&country=7666
Racing Against Time:
13
both domestically and internationally that the
King is committed to the form of constitutional
monarchy but not its function.24 Moroccans have
come to see the institution as an advisory body
that performs no real function. An electoral law
designed to limit any real challenge to the palace by
keeping political parties weak and the parliament
highly fragmented added to that perception.
Evidence of the increasing popular reluctance to
support the status quo can be seen in recent voting
patterns. Despite massive efforts by the government
and others to motivate Moroccans to participate
in their electoral process, turnout dropped to an
historic 37 percent low in the 2007 parliamentary
elections. Of those who voted for parliament, a
high percentage — 28 percent — cast blank or
protest votes, more votes than were received by the
next two voter getters combined. In effect, only 21
percent of registered Moroccan voters elected the
current parliament.25
In the elections, the Islamist Justice and
Development Party (PJD) that many expected to
win ended up coming in second. There have been
various interpretations of the PJD’s defeat. Some
optimists have seen the result as part of a regional
phenomenon in which Islamist solutions to modern
problems are increasingly being rejected by voters.
While this may be the case in part, the widely held
Moroccan view that the parliament has no real
power, and that the Islamist opposition has failed to
achieve anything through it, may indicate a darker
alternative narrative. For instance, the outlawed
Charity and Justice Party, a more radical Islamist
party that has rejected participation in politics, has
24 
It is interesting to compare support of Jordanians for their
parliament where MPs are empowered at least to hand out some
jobs and services.
25 
“Final Report on the Moroccan Legislative Elections,” Septem-
ber 7, 2007, National Democratic Institute, 2007, p. 2.
14 The German Marshall Fund of the United States
seen its popularity climb as PJD’s electoral fortunes
have waned. The former, together with other anti-
monarchy Islamist parties, have chosen a different,
more traditionally Islamist course, i.e. working to
secure hearts and minds by providing services and
cementing a conservative religious bulwark against
further modernization.
In established democracies with functioning
institutions, low turnout is not necessarily a signal
of a democracy’s poor health, an argument that
few Western politicians make when reacting to
election phenomena in countries like Morocco.
Low voter turnout in the United States, for
instance, has typically reflected broad satisfaction
with how individuals are living their lives even if
they say they are unhappy with the institutions
in Washington. However, in new or emerging
democracies a sharp drop off in voter turnout can
signal public disaffection that goes beyond simple
apathy. If people feel they cannot shape their
political system through existing, formal channels,
they will resort to others.26
Thankfully for the king, Moroccans’ deep
skepticism about parliamentary politics has not
eradicated their faith in the institution of the
monarchy. Moreover, Moroccans witnessed the
enormous violence and dislocation during Algeria’s
lost decade and are not eager to experience such
upheaval themselves. The fact that Mohamed VI
retains the title of the Commander of the Faithful
adds both to his mystique and to his power, making
the legitimacy crisis in Morocco less acute than
it might otherwise be. Finally, the existence of a
growing number of civil society organizations,
26 
For a fascinating discussion of this new “social dynamism”
phenomenon, read the transcript of Amr Hamzawy’s presen-
tation at the Carnegie Endowment when launching his and
Marina Otaway’s book “Getting to Pluralism: Political Actors
in the Arab World,” http://www.carnegieendowment.org/
files/0916_transcript_pluralism3.pdf
including unions, provides a critical feedback
mechanism for decision-makers to understand
how their decisions are having an impact on the
people. Still, unless the Palace moves forward soon
with deeper political reforms, the king’s economic
reforms, critical to regime survival, may be at risk.
Outside of Morocco, the pace of political reform
in the remaining three countries has been glacially
slow, contributing to Morocco’s star status, if only
by comparison. For more than ten years, Libya,
Algeria, and Tunisia have each been characterized
as “Not Free” by Freedom House, maintaining
highly evolved police states. There are one or
two bright spots in each country — Algeria, for
instance, has a flourishing free print press — but on
the whole these countries’ political systems remain
hermetically sealed. Libya’s Jamahiriya Republic
operates without a written constitution and is at
the mercy of a capricious leader. Tunisia’s police
state has developed much more sophisticated tools
for repression and is referred to within the U.S.
Department of State as “Syria… with a smile.” It
has one of the worst human rights records in the
region; the least free press and no real opposition to
the ruling RCD party, which has remained in power
since Tunisia secured its independence in 1956.
In each country electoral politics, to the degree
they exist at all, are fundamentally non competitive
and serve only to provide a fig leaf of legitimacy
to the ruling regimes. In Algeria in 2008, a highly
controversial set of constitutional amendments
designed to permit President Abdelaziz Bouteflika
to run for a third term culminated in sham
elections in which he again won 90 percent of the
vote. Official statements quoted turnout at 74.5
percent although most observers conclude it was
closer to an anemic 24 percent, if that.
Reform in North Africa and Transatlantic Strategies
In October 2009, Tunisia’s President Ben Ali stood
for and won his fifth five-year term as president.
(He set the precedent for Bouteflika by amending
Tunisia’s constitution to allow for multiple terms
prior to the last election in 2004.) Although he
confronted a number of challengers, none of them
were serious and the president won re-election
handily being just shy of 90 percent of the vote. In Tunisia’s police
Libya, of course, nothing akin to a modern political state has
system exists even in form. The leader remains the
developed
only point of political continuity, making all key much more
decisions for the country without any discernible,
sophisticated tools
institutionalized decision-making process.
for repression
In each republic, the regimes face upcoming and is referred
transition challenges. Bouteflika, aged 72, has to within the U.S.
been battling myriad health issues for years Department of
and rumors persist that he has cancer. Ali is State as “Syria…
73 and, though in better shape, there is no with a smile.”
succession plan in place should he die.27 The
same is true for Qaddafi, aged 67. Currently,
familial transitions are being contemplated in all
three: father to son in Libya; brother to brother
in Algeria, and father to son-in-law or wife in
Tunisia.28 At present, there is little to indicate
where organized opposition to such transitions
would come from within society especially given
the “successful” transition in Syria and the much
anticipated father-son transition in Egypt.
27 
The Tunisian constitution currently states that no one over
the age of 75 can run for president. Should Ben Ali serve his
full five-year term he would be 78 and ineligible to run for a
sixth term.
28 
“The Rising Sons of North Africa,” Wolfram Lacher, Project
Syndicate, December 24, 2009, available http://www.project-
syndicate.org/commentary/lacher1/English; “Le parcours
fulgurant de Sakhr El-Materi, gendre du président tunisien Ben
Ali,” Le Monde.fr, October 24, 2009, http://www.lemonde.fr/
afrique/article/2009/10/24/le-parcours-fulgurant-de-sakhr-el-
materi-gendre-du-president-tunisien-ben-ali_1258326_3212.
html#ens_id=1245377
Racing Against Time:
15
 What passes for legitimacy in each country, its end of the social contract even if the elites
therefore, largely hinges on the governments’ ability are beginning to chafe at the restrictions placed
to successfully provide security29 and services. upon them. Libya’s political order is beginning
Since public opinion research is prohibited by to fray but as long as the state continues to
law in each country and elections are more or provide jobs and services, demands for additional
less meaningless as an indicator, assessing how civil and political rights will remain muted.
citizens evaluate the government’s performance
What passes remains impossible. Nonetheless, dissatisfaction The ossification of the political systems in these
for legitimacy has clearly not reached a level in which broad three countries does not suggest imminent
instability is likely in the near future. There are revolution or even wide-spread social unrest,
in each country
reasons for this that go beyond the effective use of but it does create serious obstacles to regional
largely hinges on
security services. Algeria’s decade long civil war integration and further economic reform. In each,
the governments’
has exhausted the population and contributes to complicated regulatory frameworks, bloated public
ability to bureaucracies, and state-owned companies remain
its quiescence. The Tunisian government’s ability
successfully the key levers through which the political elite
to widen prosperity has meant that it is upholding
provide security maintain the system. No effort to tackle these key
and services. challenges can be started without a new political
The ossification 29 
Security as defined by the regime and not as the UNDP re- vision and the will to implement it, and both vision
cently tried to do in its latest Arab Human Development report
of the political where it elaborated the concept of “human security.” See chapter and will are sorely lacking in the republics. Without
systems does not one of the “UNDP Arab Human Development Report, 2009,” them macroeconomic reform has probably reached
http://www.arab-hdr.org/publications/contents/2009/ch1-e.pdf
suggest imminent the limits of what it can achieve.
revolution or
even wide-spread
social unrest, but
it does create
serious obstacles
to regional
integration and
further economic
reform.

16 The German Marshall Fund of the United States

4 Toward a transatlantic response?
In the face of these economic and political
challenges, Europe and the United States have
pursued various strategies designed to tackle
the key challenges in North Africa. Each has
perceived those challenges through its own prism
and responded accordingly; neither response
has achieved everything desired and both could
be strengthened through improved information
sharing, cooperation, and, in some cases,
coordination. More importantly, without more
visionary leadership from the leaders of partner
countries, neither approach will achieve much.
From 1995 to 2005, Europe’s primary vehicle
for interaction with North Africa was the Euro-
Mediterranean Partnership, better known at the
Barcelona Process. Launched in part to appease the
southern members of the European Union at a time
when Germany and Brussels were more focused
on the states of Central and Eastern Europe, the
Barcelona Process also came at a time of broad,
if misplaced, European optimism about the
prospective end to the Palestinian-Israeli conflict.
Over the course of ten years, however, Barcelona
achieved disappointingly few results, especially
when compared to the progress made by Central
European nations. Intraregional trade remained
extremely low. Economic growth, though positive,
was unbalanced and there was actually a regression
in governance indicators.30 The vision had been and
remains a good one,31 but implementation failed
to overcome key obstacles related to the absence of
regional integration and the even more profound
absence of visionary leadership committed to
30 
UNDP Arab Human Development Report, 2009, p. 263.
31 
The Barcelona declaration’s political vision states in part, “The
general objective of turning the Mediterranean basin into an
area of dialogue, exchange, and cooperation guaranteeing peace,
stability, and prosperity requires a strengthening of democracy
and respect for human rights, sustainable and balanced eco-
nomic and social development, measures to combat poverty, and
promotion of greater understanding between cultures.”
Reform in North Africa and Transatlantic Strategies
reform. Europe’s broader regional approach
remained tied in knots related to the vicissitudes of
the Palestinian-Israeli conflict that many Europeans
accepted as an excuse for not making more progress
on reform related issues. The bilateral approach,
as pursued through association agreements also
had limited impact, except in the area of trade,
where the refusal of the European Union to open its
agricultural markets curbed broad gains that might
have otherwise been achieved.
After EU enlargement took place in 2004, Brussels
developed the European Neighborhood Policy
Initiative (ENPI) to reassure nervous nations that
did not make it into the European Union that
enhanced cooperation with Europe was still a
possibility. Core to ENPI are bilaterally negotiated
action plans “with reform-minded governments”
that offer “a deepening of the political relationship
and the prospect of a significant measure of
economic integration through gradual integration
in the EU internal market.” Each action plan sets
out agreed reform priorities that once negotiated
are funded by the European Union. Positive
conditionality theoretically creates the incentive
mechanism to produce results. Currently, the
European Union has action plans with Morocco
and Tunisia. Algeria has refused to agree to an
action plan, content with the association agreement
it signed in 2002.
Last year, yet another layer was added to the
Barcelona Process to incorporate President
Sarkozy’s notion of establishing a Union for the
Mediterranean. First announced in May 2007,
Sarkozy’s concept paid lip service to the “successes”
of the Barcelona Process, but proposed to scrap it
for a completely new arrangement that promised
closer political ties with the EU’s southern member
states. The French were forced to back down,
however, by the Germans, primarily, who rejected
the notion that southern member states could
embark on a project of this scale without them,
Racing Against Time:
17
 especially as they would end up helping to pay for
it. At the Paris Summit in 2008, the compromise
was to incorporate the new idea within the
Barcelona Process, today known formally as the
Union for the Mediterranean or UPM, to use the
French acronym.32
The European How the UPM will differ from Barcelona is still
approach has being worked out but the elements of the European
approach in practice will persist: a mixture of
been heavily
bilaterally negotiated reform plans, emphasizing
process-oriented,
trade liberalization, coupled with efforts at regional
relies on positive
political consultation. According to EU documents,
conditionality UPM plans to commit 12 billion euros to the
and trade various action plans over the seven-year period
liberalization, and from 2007–2013 with 10 percent of those funds
is complicated by going to regional programs to stimulate regional
ambivalence on integration. For comparison, the Barcelona Process
both sides of the dumped 9 billion euros into the region in its first
Mediterranean ten years and made an additional 12.2 billion in
about Europe’s loans available.33
colonial past. The
The European approach then has been heavily
United States process-oriented, relies on positive conditionality
as a status quo and trade liberalization, and is complicated by
power sought to ambivalence on both sides of the Mediterranean
fundamentally about Europe’s colonial past. For the countries of
alter the status North Africa, especially Morocco, which would
quo in the region. like to see even deeper integration with Europe,
Europe’s ultimate political objectives remain
obscure. If Europe really does want regional
integration how does a primary reliance on bilateral
mechanisms achieve this? If membership is not an
option what is the desired end-state relationship
between the European Union and the individual
countries of the region?
The U.S. approach to the region has been more
episodic and less coherent. Nonetheless, it has
produced a great deal of ferment in recent years
32 
http://ec.europa.eu/external_relations/euromed/index_en.htm
33 
http://ec.europa.eu/delegations/deljor/content/bb10.pdf, p.5.
18 The German Marshall Fund of the United States
stimulating many of the gains achieved in the
current decade.
For much of the Cold War, the U.S. pretty much
ignored the Mediterranean region as a region,
leaving it to Europe to manage its backyard. To
the extent that it did concern itself with the region
as a whole its diplomatic energies were expended
on Middle East Peace efforts and in securing
U.S. (but more the world’s) oil supplies. When it
came to North Africa, then and now, the United
States tends to see the region through a security
prism, worrying principally about terrorist activity
and exported instability. The second Clinton
administration saw the most dedicated period of
attention to North Africa in the pre-9/11 period.
The Eisenstadt Initiative, more formally known
as the U.S.-North Africa Economic Partnership
Initiative, sought to advance U.S. trade and
investment in the region and was coupled with
a failed diplomatic effort to resolve the Western
Sahara conflict. Elements of the Eisenstadt
Initiative were later subsumed into the Middle East
Partnership Initiative (MEPI) in 2002.
The shock of 9/11, however, fundamentally altered
the United States’ national security perspective
toward the Middle East, ushering in a period
of unprecedented U.S. activism in the region.
A dizzying set of new initiatives (and a war)
were undertaken from 2002 to 2004, all with the
expressed intent to force change on a region that
Washington perceived as mired in stagnancy.
Distinct from the EU’s approach, the United States
under the last Bush administration did not perceive
the Palestinian-Israeli conflict to be the “core
conflict” in the region. Moreover, it felt pressure on
authoritarian governments to change policy would
be more effective than incentivizing them. In short,
the United States as a status quo power sought to
fundamentally alter the status quo in the region. As
one senior White House official told the author at
the time, “Our intent is to shake the region by the
neck and see what happens.”
The ambitious scope of the administration’s
new approach included bilateral, regional, and
multilateral initiatives, though they were not
conceived coherently as such.
In early 2002, the Bush administration initiated a
review of all U.S. bilateral economic aid packages
with the intent of reshaping them to become
more results oriented, especially in the area of
economic and political reform.34 Significantly, the
review introduced the concept of both positive
and negative conditionality within bilateral aid
mechanisms. In December 2002, the administration
launched the Middle East Partnership Initiative,
a regional initiative designed to support the
demand-side for reform by creating programs to
support civil society organizations in a variety of
sectors. In March 2003, the United States invaded
Iraq, eliminating a feared Arab leaders’ regime in
less than three weeks, sending shockwaves across
the region, and compelling Libya, which feared
it might be next, to abandon its weapons of mass
destruction programs and seek rapprochement
with the West. Both before and after the invasion,
introducing democracy to the region was one of the
rationales given for the war.
In May 2003, the U.S. administration launched the
Middle East Free Trade Area Initiative, designed to
stimulate economic reform and expand trade and
investment with the region, culminating eventually
in a regional free trade agreement. In November
that same year, President George W. Bush gave a
seminal speech at the National Endowment for
Democracy in which he outlined his “Forward
Strategy of Freedom” in the Middle East.
34 
The United States currently has bilateral aid relationships with
Egypt, Jordan, Morocco, Palestine, and Yemen. The largest by far
is Egypt’s, where the first review was conducted and where the
most wholesale change took place.
Reform in North Africa and Transatlantic Strategies
Flowing from that speech, in 2004 the Bush
administration next launched what became
known as the Broader Middle East and North
Africa Initiative (BMENA). Established within
the G8 framework, BMENA sought to support
voluntary economic, political, and social reforms
in the BMENA region but its clumsy introduction,
especially in the year after the war in Iraq,
fomented a great deal of friction in the transatlantic
relationship. The timing was poor. It was announced
a year before the historic anniversary of the
Barcelona Process and though it was not intended
to be a replacement of the Barcelona Process, it was
perceived as such by Europe, which resented it.
Having only a shallow understanding of the
Barcelona Process — its aims, objectives,
programmatic and political approach — the United
States advanced its new idea with little consultation
with the Europeans and no consultation with the
countries of the region. When the initiative was
leaked to the Arab press, Washington had to back
track to keep the initiative alive but managed to
retain it core elements, launching it officially at the
Sea Island G8 Summit in June 2004. Neither Saudi
Arabia nor Egypt sent representatives.35
Today, it remains unclear what the future of
BMENA will be under the Obama administration,
but U.S. Secretary of State Hillary Clinton’s
November 2009 participation in the Forum for the
Future meeting in Rabat, Morocco at least gives
hope that it will remain a vehicle for greater U.S.-
European cooperation, a point that will be returned
to later.
In summary, the U.S. approach to the region under
then-President Bush was characterized by the
use of hard power, sharp rhetoric, both positive
35 
See among others, “The Greater Middle East Initiative:
Off to a False Start,” Thomas Carothers, Marina Ottaway,
Carnegie Policy Brief, no. 29, March 2004, http://www.carnegie
endowment.org/publications/index.cfm?fa=view&id=1480
Racing Against Time:
19
 and negative conditionality, and a prioritization
of political and economic reform and trade
expansion over peacemaking. When it came to
North Africa, the new set of policies had fewer
implications than elsewhere in the region, however.
Apart from the desire to have a “success story” in
the case of Morocco, the relationships with the
To date, other three countries rested primarily on counter
the Obama terrorism cooperation and military-to-military
contacts, contributing to a go-steady approach.
administration has
The administration’s “freedom agenda” rhetoric
de-emphasized
initiated a frosty period of relations with Tunisia
political and
over deepening concerns about human rights
economic reform
and the lack of progress on political reforms, but
in the region
its lack of leverage over Tunisia produced few
while not officially
results. Morocco became a key partner in BMENA,
abandoning its
signed the second free trade agreement in the
objectives. Arab world (Jordan was the first to do so), but also
saw pressure mount to make progress on political
reforms necessary to qualify for the Millennium
Challenge Account, which it ultimately did. Its
existing aid package was also reoriented to ensure
that a small portion would support the growth of
nongovernmental organizations. MEPI opened a
regional office in Tunis and introduced a number
of new programs in both Algeria and Morocco and
sought to do the same in Libya when it opened
to the world. The preoccupation in North Africa
remained security, however, and by far the largest
program started in the region was and remains the
Trans-Sahel Counter Terrorism Initiative, involving
ten countries and $500 million.
To date, the Obama administration has de-
emphasized political and economic reform in
the region while not officially abandoning its
objectives. The administration requested a large
increase in funding for MEPI, for example, and
Secretary Clinton’s attendance at the annual Forum
for the Future, the summit of G8, and regional
foreign ministers at the heart of BMENA, sent
a positive signal. The administration has not as
20 The German Marshall Fund of the United States
yet formulated its own approach to these issues,
however, subsuming them in a broader review of
development assistance that has yet to conclude.
Much has been made of Bush-era rifts between
the United States and Europe over Iraq and Bush’s
policy priorities as represented in the Freedom
Agenda. Yet, as Tamara Wittes and Richard Youngs
have convincingly pointed out, the reality of the
perceived gap was never as real as the perception,
and had much more to do with rhetoric and
Bush’s unpopularity in Europe than with policy
differences.36 Over the past five years, in fact, a
convergence in conceptual approach has taken
place, creating scope for greater coordination, if
not cooperation. Today, they share a number of
key features: a stress on bilateralism, an emphasis
on trade and investment, a relative de-emphasis
on political reform, and the use of positive
conditionality as a tool to incentivize reform. The
United States has also returned to the pre-Bush era
preoccupation with solving the Palestinian-Israeli
and wider Arab-Israeli conflict as a pre-condition
for redressing the political and social ills of the
region, a policy shift long advocated by Brussels.
Whether this observed convergence in general
approach to the region will have meaning in North
Africa largely depends on whether either side
of the Atlantic perceives value in a transatlantic
approach. This remains highly unlikely for a
number of reasons. The sheer number of priorities
for the Obama administration alone make such
prospects remote. The structure of the national
security infrastructure, especially at the U.S. State
Department, militates against it as well. There
is no one responsible on a day-to-day basis for
36 
“Europe, the United States, and Middle Eastern Democracy:
Repairing the Breach,” Analysis Paper, no. 18, January 2009,
Tamarra Wittes, Richard Youngs, http://www.brookings.edu/~/
media/Files/rc/papers/2009/01_middle_eastern_democracy_
wittes/01_middle_eastern_democracy_wittes.pdf
giving the region priority at a senior level at the
State Department or anywhere else within the U.S.
government and the myriad bits of the interagency
process that would have to come together to
coordinate with Europe dazzles the mind.
For its part, Europe has been deeply ambivalent
about being seen to coordinate with the United
States on these issues, though with the change
of administration that view may be giving way
slightly.37 Europe’s southern member countries,
particularly France and Spain, have jealously
guarded against closer coordination in their
backyard.38 There is also the question of how the
37 
In an interview with a current senior State Department of-
ficial, however, there was a cynicism about Europe: “Europe
continues to want to define itself by its opposition to us.”
38 
As a small symbolic example, in 2005, the United States
discretely explored the possibility of being invited to the 10th
anniversary of the Barcelona Process as observer in Madrid but
was firmly, if diplomatically, rebuffed.
governments of the region would react to a more
coordinated transatlantic approach. The regimes
have become adept as playing the United States
off against the European Union and vice versa, for
instance, and quite skilled at managing Western
expectations, doing just enough to keep external
pressure from growing to a point of discomfort.
The U.S. experience with BMENA has not been an Success, however
encouraging one in this regard. defined, will
In any event, success, however defined, will not lie
not lie primarily
primarily in how closely Europe and the United in how closely
States work together but rather on the commitment Europe and the
on the part of the regimes themselves to make United States
political and economic reform a priority. This, too, work together
has implications for what a transatlantic approach but rather on
might look like. Nonetheless, a modest investment the commitment
in closer coordination and cooperation by Europe on the part of
and the United States on North Africa could yield the regimes
positive results.
themselves to
make political
and economic
reform a priority.

Racing Against Time:

21
Reform in North Africa and Transatlantic Strategies
 5 Recommendations
The United States and Europe should consciously
embrace the notion of “variable geometry,” so
operative within the European Union context,
in their approach to North Africa. Rather than
force integration, the United States and Europe
should work more closely with those governments
prepared to take steps to improve their economies.
The United States
should work with As part of this effort, Europe should seek to educate
U.S. policymakers on the elements of individual
the European
action plans with an eye to coordinating political
Union and the
messages to the governments of the region. This
rest of the G8 to
could take place shortly after the Brussels biannual
refashion BMENA assessments of progress within the action plans.
with an eye toward The United States should reciprocate by sharing
enhancing its core elements of its Embassy’s Mission Performance
political aspects Plan (MPP) objectives for a given country. This
for more reform- routine information sharing will be critical to
oriented countries. ensuring resources are targeted correctly. Although
it remains unlikely — and perhaps undesirable —
that the respective efforts would ever be integrated,
greater coordination should be the ultimate
objective of such talks.
Morocco should be the first test case for more
intensive coordination. The United States and
the European Union both need a success story
to point to, and despite its many challenges,
the Moroccan government’s demonstrated
commitment to economic reform recommends
it for more attention. Already, the United States
and European Union are committing significant
resources to Morocco. The Millennium Challenge
Corporation (MCC) Compact with Morocco,
which entered into force in September 2008,
allocates $697.5 million over a five-year period
to reduce poverty. Europe’s action plan, although
more comprehensive in approach, works in
many of the same sectors and committed an
additional 682 million euros for the period
2007–2010. Clearly, more formal information
sharing would ensure enhanced impact.
22 The German Marshall Fund of the United States
As part of an enhanced relationship, Morocco
should commit to doing more on its stated
commitment to political reform. Hopefully,
demonstrated success in Morocco will lead other
countries in the region to follow suit.
The United States and European Union should
recommit to efforts to establish a free trade area
within North Africa and work together to support
the evolving common market between Morocco,
Tunisia, Jordon, and Egypt as part of the Agadir
agreement. Currently, rules of origin between the
United States and Europe differ to an extent that
the United States is handicapped in doing more
to help. Domestic political considerations on
Capitol Hill also impede the current White House’s
enthusiasm for the Middle East Free Trade Area,
but the atmosphere may become more conducive in
2011 after mid-term elections.
The United States should work with the European
Union and the rest of the G8 to refashion BMENA
with an eye toward enhancing its political aspects
for more reform-oriented countries. This would
create an additional incentive for those countries
looking to go further faster in their reform agendas.
The Sea Island documents establishing BMENA
clearly allow for this.39
The United States and the European Union should
do more to stimulate the demand side of the
reform equation by working together to uphold the
principle that nongovernmental organizations can
receive foreign funding so long as it is documented
as coming from credible sources. As a corollary,
both should do better at creating a mechanism to
make smaller grants available to such organizations
across the region. A recent USAID Inspector
39 
See for example paragraph 1.5 of the G8 Plan for Support,
June 2004, calling for “willing partners” to come together to
form the Democracy Assistance Dialogue (DAD). Currently,
Italy, Morocco, Yemen and Turkey are active in the DAD. http://
www.g7.utoronto.ca/summit/2004seaisland/reform.html
General report on democracy assistance to Egypt
points out the relative success of such grants when
compared to large contracts funneled through
contractors working with governmental or quasi-
governmental organizations.40
While it is unrealistic to expect the United States
to commit significant resources to addressing the
challenges of North Africa, modest bureaucratic
adjustments, coupled with programmatic and
policy tools, could have a real impact.
The Obama administration should establish a
Deputy Assistant Secretary (DAS) dedicated
exclusively to North Africa within the Bureau of
Near East Affairs or the Bureau of African Affairs.
Currently, the DAS responsible for North Africa
also oversees both the Office of Gulf Affairs as
well as the Office of Regional Affairs. The latter
is responsible for handling all functional and
multilateral issues in the region as a whole and for
developing the Bureau’s budget for the region each
year. The DAS responsible for MEPI, nominally
responsible for advancing U.S. reform strategies in
the region, also has an extensive portfolio covering
all countries from Morocco to Iran, effectively
barring a concentrated focus on North Africa.
This DAS would be responsible for driving policy
related to the region as a whole, establishing
“Audit of USAID/EGYPT’s Democracy and Governance
40  between the European Union and the United States,” Testimony
Activities,” Audit Report No. 6-263-10-001-P October 27, 2009,
USAID, Office of the Inspector General, http://www.usatoday.
com/news/pdf/usaidaudit.pdf
Reform in North Africa and Transatlantic Strategies
routine inter-agency coordination mechanisms
that he or she would chair. The new DAS would
also be responsible for undertaking the more
in-depth country reviews with his/her European
counterparts elaborated above.
At the mission level, U.S. ambassadors and USAID
directors should meet regularly with their European
The Obama
counterparts to share information and, if possible,
administration
coordinate messages, if not efforts, to stimulate
reform. Once the new European External Action
should establish a
Service is in place, following full implementation Deputy Assistant
of the Lisbon Treaty, EU ambassadors will have Secretary
some ten times the resources of existing European dedicated
country embassies, according to one account.41 exclusively to
The United States should help to galvanize internal North Africa within
European coordination by prioritizing diplomatic the Bureau of
and development activities with this embassy, Near East Affairs
increasing the possibility of greater coherence in or the Bureau of
transatlantic cooperation at the country-level.
African Affairs.
Funding for MEPI projects specific to Algeria,
Libya, and Tunisia should also be increased.
Rich oil-producing states are not candidates for
economic assistance but key reform areas critical
to governance (e.g. judicial reform, independent
media, etc) do not require large amounts of
funding, and are vital to the development of more
responsive states.
41 
See “The Lisbon Treaty: Implications for Future Relations
to the House Committee on Foreign Affairs, Subcommittee on
Europe, December 15, 2009, Dr. Daniel S. Hamilton, p. 3.
Racing Against Time:
23
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