In the beginning of 2011, among the young protestors across the Tahrir Square, the word unemployment had been constantly repeated. Despite the initial political revolt, it is undeniable that economic opportunity had been a huge driver to the political uprising that took place in the Arab World. But, 11 months into the Arab Spring, we question ourselves: were the revolutions economically “profitable”? Will we be witnesses to a new emerging region on the global economic playing field?
Up until now, there are no signs of an economic recovery. And while a year into the Arab awakening democracy remains elusive for the majority of populations in revolt, the economy is under an even greater threat now than ever. With unstable political systems, and tensions continuing to grow against the military groups currently in power (particularly in Egypt), the economy has been set aside. And the consequences are visible with the Arab world entering an economic slowdown in the third quarter of 2011. In its quarterly economic survey, the International Monetary Fund (IMF) points out that the three countries that have deposed their rulers, Tunisia, Egypt, and Libya will face an economic slowdown in 2011 and perhaps through 2012.
The economic slowdown has been caused by a sharp decline in tourism and foreign direct investment flow. Tourism activity with its high elasticity is very vulnerable to external shocks, so the regional social disruption caused double-digit declines in tourism arrivals in Egypt, Jordan, Lebanon, Syria, and Tunisia in the first five months of the year (Figure 3.). Furthermore, with a drop in investor confidence, the stock market has fallen down from 8% in Tunisia to 41% in Egypt in 2011 (Figure 4.).
In addition, historically, political turmoil in the Middle East can cause powerful economic and financial implications as it increases the risk of stagflation, a combination of slowing growth and sharply rising inflation. Examining chart 1, it is evident that the region has shown a tendency towards this as GDP growth rates have fallen and inflation has increased. There is a serious threat that the uprisings will spread, destabilizing Bahrain, Algeria, Oman, Jordan, Yemen, and eventually even Saudi Arabia, causing a sharp increase in world oil prices that could lead to a recession across the globe. However, MENAP oil exporters have benefited from high oil prices, which have provided a boost to their economic activity. Kuwait, Saudi Arabia, and the United Arab Emirates stepped up their oil production to make up for the shortfall from Libya. Prior to the conflict, Libya had accounted for 2 percent of global oil production.
The intensification of regional turmoil due to the Libyan conflict has further contributed to driving tourists and foreign investors away from the region. Particularly in Libya the conflict has had a severe impact on economic activity dependent on hydrocarbons, which account for 70% of GDP and 95% of exports (Figure 5.)
The International Monetary Fund estimates that almost $21 billion have been lost in the real economy (production of goods and services), while the public finances (revenue from taxes and other sources) have decreased for another $35 billion, which adds up to a loss of $56 billion across the region. But as they say, freedom is not free, and there are now some clear costs emerging. Although, it is undeniable that the Arab Spring countries are in a period of unprecedented change that holds the promise of improved living standards in the future to come, as short-term economic pressures slower the political transition, the long-term benefits of the Arab Spring are harder to see.
Autorica osvrta: Ria Ivandić
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1 MENAP exporters: ALG, BHR, IRN, IRQ, KWT, LBY, OMN, QAT, SAU, SDN, UAE, YMN. MENAP importers: AFG, DJI, EGY, JOR, LBN, MRT, MAR, PAK, SYR, TUN.