Wasta: How the Use of “Connections” Impacts on Private Sector Development in Arab Countries and Why

The literal translation of the Arabic word wasta is “connection,” but it is often employed for favoritism, that is, the use of personal relations for preferential treatment. Favoritism is a form of corruption when someone uses her/his position to distribute the resources of someone else (e.g., the employer or the state) to a friend or relative.

Favoritism is relatively common in several Arab countries as it is in other world regions. People use wasta to get jobs, loans, scholarships, or admission to university, to earn better marks at school, to avoid fines and penalties, to obtain an individual tax reduction, a business license, or a production permit, or to go through administrative procedures faster than normal.

This, however, has profound negative effects on the social, political, and economic development of the Arab countries. First, it intensifies socio-economic disparities. People who are already disadvantaged with regards to income, assets, education, and living conditions and less integrated into society tend to have less wasta to persons who might do them a useful favor. As a result, they have fewer opportunities for gaining access to good jobs and services and thus improving their living conditions.

Second, favoritism can create or perpetuate dependencies. Where formal rules are undermined by frequent preferential treatments of well-connected persons, people conclude that all government services are individual rewards rather than something that citizens have a right to. This attitude can strengthen authoritarian regimes that are based on patron-client relations: The rulers grant favors to their clientele and receive loyalty in return.

Third, favoritism affects the investment climate and thereby economic development at large. Some researchers have postulated that favoritism may have positive effects on investment and growth because it creates trust between business people and policymakers, facilitates the flow of information, and thereby reduces transaction costs. As a result, it encourages investment. This line of argumentation is plausible, in fact, with regards to business people who have good connections: They trust the state if somebody in the public administration takes care of their concern. Other business people, however, may be penalized for their lack of connections.

Favoritism thus leads to unfairness and inefficiency in state-business relations and distorts competition. For example, when licenses are granted on the basis of personal preference, the costs and risks of applying for it may be too high for those who have no personal connections in the public sector. Moreover, wasta can help to get valuable (sometimes even confidential) information on profitable business activities, tenders, tax exemptions, etc., thereby providing exclusive business opportunities. Likewise, well-connected people can sometimes even influence the formulation of laws and regulations in a way that they benefit from it or even so that their competitors are excluded from some market. Finally, the widespread use of wasta makes business people invest time and money that they could otherwise use for productive purposes to improve their wasta in order to obtain preferential treatment.

The perception of wasta among people in Arab countries is ambiguous. Some refuse to use their wasta. Others employ it even though they are aware of the fact that favoritism has negative effects on development and discriminates against people with less wasta. Other people again argue that there is no alternative to the use of wasta in order to get what one needs.

Four factors contribute to the persistent importance of wasta in different kinds of interactions. First, many people feel helpless if they have to go through lengthy, costly, burdensome administrative procedures: They use their wasta just because they are afraid that they might be unable to reach their goals otherwise. Second, nobody has an incentive to refrain from the use of wasta as long as most other people use it. Third, tribalism makes people identify with their family, neighborhood, clan, or tribe rather than society or the state at large and to see themselves as parts of a group rather than individuals. It thus makes people feel obliged (and be expected by others) to support their relatives and friends. Fourth, all Arab countries were ruled until recently – and most of them still are – by authoritarian regimes in a neo-patrimonial manner: Their rulers present themselves as caring patriarchs and distribute material benefits to citizens (free health services, housing, subsidized energy) in order to create legitimacy and to stabilize their rule. Their most loyal constituencies are rewarded with influential positions in the state apparatus and other privileges (e.g., import monopolies). Entire political systems are thus built on a hierarchy of clientelistic relations: Everybody in them is dependent on the benefits granted by her/his superior and therefore owe loyalty to that person. Wiping out the use of wasta would be completely against the interest of political leaders because their power depends entirely on the exchange of favors against loyalty.

As a matter of fact, the prevalence of wasta is highest in the Arab world in the countries that are coined by tribalism and gaps in modern nation-building on the one side, and red-tape, opacity, and slow and costly administrative procedures on the other side: for example, Yemen, Lebanon, Libya, Mauritania, Algeria, and Jordan. At the same time, the use of wasta is less dominant where administrative procedures have been streamlined by merit-based modes of civil service recruitment and different forms of e-government (Qatar, United Arab Emirates, Oman, etc.) and where citizens have developed a stronger identification with their nation (Tunisia, Egypt).

Of course, it is mainly the task of governments to rule out favoritism. Political leaders should make it a priority issue to raise citizens’ awareness of the consequences of the widespread use of wasta, to strengthen the rules that prohibit favoritism, and to promote the shift of people’s identification from primordial entities to nation states.

At the same time, however, the private sector can also play a role in the fight against wasta. Business associations and professional unions should assume responsibility for heightening awareness among their members about the negative impacts of wasta. And foreign companies in particular should consider building coalitions for change, that is, alliances of private firms that abide by a code of conduct that bans both the use of wasta and bribes in all kinds of interactions with the state.