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Arab Spring in Algeria

The Arab Spring uprising is one that has impacted many countries in the Middle East and Northern Africa with large Arab populations. The unrest has forced many countries to change the ways in which they do economic planning. It has put pressure on governments to increase economic opportunities. Ways in which governments do this is through providing more jobs or by increasing wages paid to the workers. To really understand the impact of the Arab Spring movement we must first understand what the movement is.

The Arab Spring movement is one that was motivated by issues such as unfair government policies, human rights violations, and economic decline. Specifically in the country of Algeria, the uprising came as a result of a lack of decent housing for its citizens. During these initial protests 59 people were reported as injured by police brutality. Despite these initial protests, Algeria had been able to remain somewhat under the radar during the recent years of Arab Spring protests. This is surprising considering Algeria has a rich history of political protests, which end in violence for both sides. The Algerian’s knowledge of what can happen during these political upheavals is a major reason that the country has stayed out of the spotlight.

The Algerian population was primarily seeking better food prices. In response to these demands the government implemented short-term reforms that lowered the cost of certain foods such as milk, cooking oil, and sugar. The subsidies on these goods were matched by increased wages in the public sector as well as a decrease in imports. Another major factor in the unrest in Algeria is the unemployment, especially of the youth. The youth unemployment is at 45% and will most likely rise as approximately 300,000 youth enter the work force each year.

The economic impact of the Arab Spring uprising in Algeria is seen in the lowering of taxes and increased wages in the public sector. The impact of these government decisions will most likely be seen in the consumption portion of the market and will provide households with increased purchasing power in the market. Firms will receive a benefit from these decisions as well. Firms will be able to sell more goods and therefore profits will rise within this area. As households are assumed to be the entity in charge of firms, the general population will yield both a direct benefit and an indirect benefit from these changes. Unemployment rate may also be impact positively. As firms benefit they may choose to expand and hire more workers. This will decrease the unemployment rate and help the overall economy. Rising costs of oil will also help the overall economy of Algeria, as it is one of its major exports.

Source: Algeria at the Crossroads, Between Continuity and Change
Andrea Dessi

Arab Spring Effect on Algeria

While other northern African countries are struggling because of Arab Spring, Algeria has been holding its own.  This may be because of their revolts in 1988 that led to their “Dark Decade” from 1991-2001.  These 1988 revolts led to a new constitution for Algeria, but their 1991 elections were invalidated by the Algerian army.  This unfortunately led to a civil wear that resulted in over 150,000 casualties.   This time in Algerian history is said to be why Algeria has not been hit as badly as neighboring countries by the Arab Spring.  These past years have left a big enough mark on the Algerian people that they are now thinking twice when it comes to revolting.

Because Algerians are conservative about revolting against their government, their revolts are not as threatening as surrounding countries.  These weaker riots are much easier to control.  Algeria controls these riots by using the wealth they have gotten from their oil industry.  This money is then used for increases in employees’ salaries and food subsidies.  Not only is the Algerian government trying to control the angry Algerians rioting in the street, but they are also  trying to give a boost to their economy.  Consequently, Algeria’s market is then benefitted by this increase in cash flow in the country.  More money in their economy will increase their cash flow.  It is hoped that, this will increase their economy.  This will be a great advantage to Algeria compared to neighboring countries if they can give a lift to their economy because they are already one of the least phased of countries effected by the Arab Spring.

Algeria also gave handouts to young people who are currently unemployed.  These handouts are not only passed out to help maintain their riots, but also they are intended to help these young unemployed citizens manage without a job.  Algeria will able to give such subsidies and handouts for a little while because of their large amount of foreign currency reserves of over $100 billion.  The more money in consumers hands, the more they will be willing to purchase goods.  They do face long-term trouble when it comes to one of their biggest economic markets, gas.

Their gas production has recently hit a quiescent period.  It is reported that it will soon start to decrease, consequently hurting its economy.  The Arab Spring is not helping them out in this manner because of the troubles and riots their neighboring countries are having.  This leads to a decrease in communication with them because these countries are to busy being involved with their domestic problems, and this will lead to a decrease in trading.

While it is unfortunate the Algeria had to experience the “Dark Decade” throughout the 1990’s, they are fortunate that they did go through that because the Arab Spring has shown less effect on them than on other countries.  They can also thank their money reserves.  This money has been used to settle the small amount of rioters that they do have.  The more subtle effect this money has on Algeria is that it can be used to increase spending in Algeria.  Little businesses can benefit from this money given out to potential consumers.  While Algeria’s economy is doing adequate now in the short run, the long run is the main concern for Algeria.  Their natural gas industry is planning on declining.  This is where the Arab Spring will have the most impact on Algeria’s government.  The corruption going on in surrounding countries is hurting their long term economic future, but their short term future is safe with help from their money reserves.

Economic Indicators

Zach Jergan

Arab Spring Economic Indicator

Macro

2/17/12

Economic Indicators Arab Spring

                I want to start off by thoroughly describing what the Arab Spring is.  The Arab Spring is a revolutionary movement that spread like wildfire throughout the Arab world.  To date there have been some form of revolution in 17 different Arab countries.  The impact left by the Arab Spring has not only changed political outlooks but economic ones as well.  The things that I am going to look over are how some economic indicators were affected in the region by looking at three different countries in particular: Tunisia, Bahrain, and Yemen.  These economic indicators should give a good feel of what the outlook is like on the entire region and how damaging it has been.

Let’s go through these alphabetically, starting with Bahrain.  According to a table found on zawya.com the cost to GDP in billions of U.S. dollars was $0.39(“Arab Spring losses” October 16, 2011).  The costs to personal finance were $0.69.  This all accumulated to a total loss of 1.09 billion U.S. dollars.  On top of the decline of GDP and personal finance, the last collected unemployment rate I could find on The World Factbook was 15% in 2005.  This number might not seem extreme; however looking deeper into the numbers it said that 44% of the workers in Bahrain are non-national workers.  This is a very large number and can be attributing to the high unemployment rate.  Looking at industrial production it is important to see what industries are prominent in Bahrain.  The leading industries are petroleum processing and refining, aluminum smelting, Islamic and offshore banking, and ship repairing.  The most recent statistics about industrial production were from 2010 and Bahrain has a growth of 1.5%.  This is misleading because the Arab Spring happened in December of that year.  Bahrain’s Retail Report forecasts that the country’s retail sales will grow from an expected $2.18 billion in 2011 to $2.90 billion by 2015(“Bahrain Retail Report Q2 2011” April 15, 2011).  This is all based on the assumption that the political situation remains stable.  Looking at the GDP per capita of Bahrain and seeing that during the Arab Spring it has only dropped from $27,500 to $27,300 in 2011(“World Factbook, Bahrain” February 8, 2012).  This is a strong sign that although the Arab Spring may have hurt the personal income a little it did not affect it significantly.

The second country I chose to look at was Tunisia.  Tunisia has had no real growth rate from 2010 to 2011(“World Factbook, Tunisia” February 8, 2012).  Tunisia’s GDP per capita in 2011 was $9,500 and ranked 112th in the world.  The GDP seems to have been affected by the Arab Offspring because its GDP dropped $100.  This directly affected the real personal income of the people of Tunisia because they had less money to spend.  Another economic indicator that I looked at was unemployment.  Tunisia’s unemployment rate rose 3% from 2010 to 2011(“World Factbook, Tunisia” February 8, 2012).  This number seems to have a direct correlation with the Arab Spring and has pushed Tunisia to 151st in the world in unemployment. Another statistic that Tunisia was ranked 151st in was industrial production growth rate.  This rate came in at 0%.  This might not seem alarming but it means that there was no growth at all in the industrial sector, which is not good for a struggling country like Tunisia.  Another economic factor I found was that Tunisia had a -8.5% budget deficit of GDP in 2011(“World Factbook, Tunisia” February 8, 2012).  This is just another illustration of the Arab Spring and how it is affecting the economic sector of Tunisia. A leading world producer of phosphates, Tunisia’s annual production of phosphates reached a new high in 2008. Shopping malls and local supermarkets only account for 20% of the country’s retail trade, which remains dominated by the local corner shop. (“Industry & Retail Tunisia 2010”)

The final country that I am looking at is Yemen.  In 2011 the GDP per capita in 2011 was only $2,500.  This ranked Yemen 177th in the world.  The GDP per capita dropped nearly 7.5% from 2010(“World Factbook, Yemen” February 8, 2012).  This is a significant drop from one year to another and the reasoning may have been due to the Arab Spring.  The drop in GDP per capita would have definitely affected the real personal income in Yemen because there was less money to be used.  Another economic indicator that I looked at was economic growth rate.  The growth for 2011 in Yemen was -2.5%.  This is another factor suggesting the impact of the Arab Spring hurt the economic sector severely.  On a positive note the industrial production rate in Yemen went up 9% in 2010, which put them 13th in the world.  However, the Arab Spring took place in December and effects of it were probably not felt in the industrial sector until the following year.  Although Yemen suffered some losses in 2011, it is expected that the country will recover relatively and forecast real GDP growth of 2.4% in 2012 (“Oman and Yemen Business Forecast Report Q4 2011” September 23, 2011).  This is all dependent on the stability of the government that has been stirred up by the Arab Spring.

After gathering all of this information I can firmly say that Arab Spring has definitely affected the political and economic structures in all of the countries involved.  The demonstrations affected the political sector, which then had a negative effect on the economic sector.  All of the information provided shows the negative outcomes, at least economically, of the Arab Spring.

References

Central Intelligence Agency, “The World Factbook, Yemen.” Last modified February 8, 2012. Accessed February 16, 2012. https://www.cia.gov/library/publications/the-world-factbook/geos/ym.html.

Central Intelligence Agency, “The World Factbook, Bahrain.” Last modified February 8, 2012. Accessed February 16, 2012. https://www.cia.gov/library/publications/the-world-factbook/geos/ba.html.

Central Intelligence Agency, “The World Factbook, Tunisia.” Last modified February 8, 2012. Accessed February 16, 2012. https://www.cia.gov/library/publications/the-world-factbook/geos/ba.html.

Market Research, “Bahrain Retail Report Q2 2011.” Last modified April 15, 2011. Accessed February 16, 2012. http://www.marketresearch.com/Business-Monitor-International-v304/Bahrain-Retail-Q2-6275196/.

Market Research, “Oman and Yemen Business Forecast Report Q4 2011.” Last modified September 23, 2011. Accessed February 16, 2012. http://www.marketresearch.com/Business-Monitor-International-v304/Oman-Yemen-Business-Forecast-Q4-6611166/.

Zawya, “Arab Spring losses.” Last modified October 16, 2011. Accessed February 16, 2012. http://www.zawya.com/story.cfm/sidZAWYA20111016064955/Arab_Spring_losses.

Oxford Business Group, “Industry & Retail Tunisia 2010.” Accessed February 16, 2012. http://www.oxfordbusinessgroup.com/product/industry-retail-12.

Economic Indicators for the Arab Spring

Steve Hagen

Arab Spring Economic Content

                The Arab Spring is an uprising of demonstrations and protests in Tunisia, Algeria, Egypt, Yemen, Bahrain, Libya, and Syria, as well as a few other countries in the area that began late 2010.  This uprising has caused a lot of damage to many of these countries politically and economically.  I will examine the economic content involved in a few of these countries, particularly Egypt, Libya, and Syria throughout the uprising, and observe economic indicators to see how much of an impact the Arab Spring has had on these countries.

                While many lives have been lost during the violent Arab Spring, there have also been many economic losses as well.  Since the beginning of the demonstrations and protests, there have been over $51 billion in total costs for Egypt, Libya, and Syria (“Arab Spring Losses”).  Of this debt, approximately $18 billion were costs to GDP and around $33 were costs to public finance in these countries.  However, these numbers only illustrate part of the economic problems in Egypt, Libya, and Syria.  To truly understand the crisis in these Arab countries we must observe the following four economic indicators: unemployment rate, real personal income, retail sales, and industrial production.

                CIA – The World Factbook estimates the unemployment rate in Egypt to currently be 12.2%.  This is up approximately 3.2% from the estimated 9% unemployment rate just a year ago.  This shows the devastating effect that the Arab Spring has had on Egypt’s unemployment rate.  The same source also estimates the unemployment rate in Syria to be about 8.1%.  This is not a very big difference from the 8.3% unemployment rate in Syria from a year ago, so the Arab Spring has not had much of an impact on unemployment rate in Syria.  Compared to the previous two countries, Libya has a very high unemployment rate.  It is estimated to be about 30% (“Libya — Revolution and Aftermath”).  This high unemployment rate is clearly related to the economic problems that the Arab Spring has caused.

                While real personal income data may be tough to find for these countries, GDP per capita according to CIA – The World Factbook gives a good estimation of a person’s income per year.  In Egypt, it is estimated that the GDP per capita is $6,500 for 2011.  This is the same as the GDP per capita in Egypt for 2010.  Given a 13.3% inflation rate in Egypt in 2011 (CIA – The World Factbook), the fact that the GDP per capita stayed the same for this two year span shows that the Arab Spring hurt personal income in Egypt.  In Libya, the GDP per capita dropped from $14,100 in 2010 to $0 in 2011.  Due to the political effects of Muammar Gaddafi, his radical ideas and actions had a direct correlation with the GDP per capita in Libya.  In Syria, the GDP per capita decreased from $5,200 in 2010 to $5,100 in 2011.  Similar to Egypt, a 7% inflation rate makes this decrease seem much more severe. 

                The Arab Spring has hurt Egypt in terms of retail sales.  In the first two months of 2011, approximately $1 billion were lost in retail sales due to the Arab Spring (“Egypt Retail Report Q4 2011”).  BBC News suggests that Libya similarly had major losses in retail sales in 2011 due to the demonstrations and violence brought by the Arab Spring, majorly because of decreases in tourism (Smale).  BBC News also suggests that Syria had losses in retail sales.  This was in large part because of losses in tourism due to the protests going on in Syria.  This also hurt tourism in neighboring countries such as Lebanon (“Syrian Protests”).  

                Finally, the Arab Spring has had dramatic effects on industrial production in these three countries.  The industrial production growth rate is 5.7% in Egypt (CIA – The World Factbook).  This is relatively high compared to many other countries throughout the world.  Due to the Arab Spring, Syria has a low level of industrial productivity (state.gov).  Similar to Syria, Libya is also experiencing troubles with industrial growth due to the uprising of the Arab Spring.  These repressed results show a direct relationship between the Arab Spring and a decrease in industrial production in Syria and Libya.

                In conclusion, the Arab Spring has had many harsh effects and few positive effects on the nations involved in this uprising.  By use of the four provided economic indicators, we can reasonably justify the struggles in these countries, especially Egypt, Libya, and Syria. 

 

Bibliography

“Arab Spring Losses.” Zawya. Accessed February 16, 2012. Last modified October 16, 2011. http://www.zawya.com/story.cfm/sidZAWYA20111016064955/Arab_Spring_losses. Central Intelligence Agency. The World

                Factbook. Accessed February 16, 2012. Last modified December 30, 2011. https://www.cia.gov/index.html.

“Egypt Retail Report Q4 2011.” ResearchAndMarkets. Accessed February 16, 2012. Last modified October 2011. http://www.researchandmarkets.com/research/44e074/egypt_retail_repor.

“Libya — Revolution and Aftermath.” The New York Times. Accessed February 16, 2012. Last modified February 9, 2012. http://topics.nytimes.com/top/news/international/countriesandterritories/libya/index.html.

Smale, Will. “Arab Nations Aim to Win Back Tourists.” BBC News. Accessed February 16, 2012. Last modified November 9, 2011. http://www.bbc.co.uk/news/business-15651730.

“Syrian Protests Hit Lebanon Tourism.” BBC News. Accessed February 16, 2012. Last modified October 2, 2011. http://www.bbc.co.uk/news/15145225.

U.S. Department of State. Accessed February 16, 2012. Last modified February 2012. http://www.state.gov/.

The Effect of Arab Spring on Yemen

The demonstrations and protests materializing in the Arab World are occurring in an attempt to draw attention to the repression felt by citizens of these countries.  Yemen is no exception.  Yemen’s protests, commencing in January 2011, called for the resignation of President Ali Abdullah Saleh after 33 years of authoritarian rule.  Although the resistance is intended to ignite a social revolution, the consequences of these movements have larger implications for Yemen’s economy and the macroeconomy as a whole.

Yemen is one of the poorest countries in the Arab World and is heavily dependent on oil resources for revenue.  According to the Central Intelligence Agency’s World Factbook, “petroleum accounts for roughly 25% of GDP and 70% of government revenue.”  However, Yemen faces diminishing resources, largely responsible for the country’s further decline.  Although the government has taken steps to bolster non-oil sectors of the economy along with foreign investment, they must still battle longterm challenges such as dwindling water resources and a high population growth rate in addition to Arab Spring.

The political turmoil caused by Arab Spring has exacerbated rising unemployment.  The most recent estimate of the unemployment rate reached 35%.  This in turn results in a loss of income and therefore a decline in standards of living.  This is accurately reflected in GDP per capita, estimated at $2,500 in 2011.  The population below the poverty line was also listed at 45.2%.  This is no surprise as political turmoil often demands that attention be focused elsewhere, rather than on the current state of the economy.

Rising unemployment also has the property of a domino effect.  Those people facing unemployment will have less demand for goods and services, thus affecting the employees in the sector that provides those goods and services.  A decrease in demand means that the marginal product of labor decreases.  A chain reaction ensures, causing more workers to be laid off.  In addition, the decrease in wages implies a decreasing money multiplier.  If people do not have money to save and invest, the banks cannot create more money by distributing loans.

Yemen, already a suffering country, is experiencing a loss of national output as well.  If people are spending their time protesting rather than working, resources are being wasted, which also decreases GDP.  The government must also focus on welfare spending despite foreign aid they receive for development projects and humanitarian needs, which increases deficits.  An increase in government spending results in a decline of national savings, raising the interest rate and discouraging investment.  In addition, government spending is heightened even more as the government attempts to stifle more protests and uprisings.  The corrupt government, heightened by Arab Spring, extends into the judicial system as well.  This insinuates that contracts are not enforced and private property rights are not respected.  This limits economic security and freedom, and discourages foreign investment.

Yemen has also experienced surging inflation rates since Arab Spring, ranking as one of the highest rates in the world, now at 20%.  This is a significant increase from the 2010 inflation rate of 11.2%.  This inflation occurs as the government issues large quantities of money to pay for expenditures.  With this, seigniorage occurs, which can be thought of as a tax.  Inflation tax hurts those who hold the money because old money in the hands of the public becomes less valuable.  The difference between the value of money and what it costs to print the money is seigniorage and goes to the issuer of the money.  In countries experiencing hyperinflation, this is often the government’s primary source of revenue.

Further, the Fisher effect explicates a one-to-one relation between the inflation rate and nominal interest rate (the rate the bank pays).  Thus, when inflation is high, nominal interest rates are high as well.  This lowers the demand for real money balances, the quantity of money in terms of the quantity of goods and services it can buy.  In other words, it measures the purchasing power of the stock of money.  If demand decreases, there is a decreased desire among the population to hold assets in the form of cash or bank deposits because of it’s decrease in value.  This is true for Yemen, as it experiences high inflation.

Arab Spring has negatively affected Yemen’s already poor economy.  The adverse effects are intertwined, leading the country farther into poverty.  These multiplier effects not only travel through Yemen’s economy, but through the macroeconomy as a whole.  The World Bank experienced interrupted projects during the political crisis in 2011 is just one example.  Thus, Arab Spring is not only a crisis for the Arab World, but the world in its entirety.

The “Arab Spring” and Egypt

When asked to evaluate the effect of the “Arab Spring” upon the economy in Egypt, I guess my response would have to be: “Probably, not much.” The revolution in Egypt, which is one of the main events within the “Arab Spring”, was mostly a political revolution. They ousted Hosni Mubarak, cleaned up corruption in the government and demanded a rewriting of their constitution. However, as fine and dandy as all of those things are, they are going to have little economic impact. Alright, one could cite the fact that state officials used their influence to create business trusts for their benefit, the most notable being in the steel industry with over half of the entirety being controlled by Egyptian political figures, but the other trusts are much smaller. That steel industry fact is misleading as well, considering that Egypt’s economy is only 40% industrial production [1]. The true problem that Egypt faced was, and still is, unemployment. With unemployment figures hovering in the low to mid teens; the job market is in dire straits in Egypt. This is caused by a massive youth bulge within Egypt; the population has more than doubled in the past 40 years and the labor force is growing at the size of 4% a year [4]. That is a problem that is not going away with a simple political revolution. The Egyptian economy could have possibly kept up with this massive population growth, if it hadn’t been for the collapse of international markets a few years after the turn of the century. The growth of GDP has been crawling along for the past couple years, and the recent revolution has lowered the projected GDP for the country, the World Bank actually is predicting a slowing of all growth in developing countries in the next few years [2] . This in combination with unrest over low minimum wages, which means that the newly elected politicians will probably cave in an attempt to curry favor, means that unemployment will probably rise even more. So I retract my previous “not much” statement, and replace it with, “it’s going to get worse.” Now while there will be some changes in the economic environment with the reduction of corruption, Egypt scored  a 3.1 on the Corruption Perceptions Index in 2010 so it’s not like they could get much more, it is doubtful they will be able to even come close to combating this unemployment problem [3]. The closest thing Egypt has to a chance of overcoming this, in my opinion, is for the new government to take the hit. Raising the minimum wage, while reducing taxes, specifically payroll taxes, would serve to boost the economy. An expansion of the bureaucracy and government sponsored projects to reduce unemployment, similar to the method championed by Rick Perry in Texas, would also serve to boost the economy. This, however, would increase the government’s debt, with it occupying over 85% of GDP already [1]. The future does not look bright for Egypt in my opinion, I foresee it having a rough couple of years, with bigger problems looming farther down the line. That is because Egypt’s problems result from severe structural issues within the economy that cannot be rectified through a simple regime change.

[1] https://www.cia.gov/library/publications/the-world-factbook/geos/eg.html

[2] http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/GEPEXT/0,,contentMDK:22804791~pagePK:51087946~piPK:51087916~theSitePK:538110,00.html

[3] http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

[4] http://www.marketplace.org/topics/world/new-egypt/long-term-economic-challenges-egypt-must-overcome

Economic Impact of the Arab Spring in Tunisia

Tunisia was the first country where the Arab Spring “fire” started. The country was facing times of political and economic instability dealing with high level of corruption, high prices, unemployment, political oppression and poverty. The government censored access to information by placing restrictions on the Internet and on the Media. Tunisia found itself in a period of great oppression under the presidency of Zine el Abidine Ben Ali, who, after manipulating the country for twenty-four years, ultimately got overthrown as a result of massive protests that started in December 2010, later on turning into massive, violent riots which resulted in socio-economic chaos, death and instability. In October 2011, The National Constituent Assembly was formed. Its primary task is to regulate the political system and to resuscitate the economy.

The Arab Spring left Tunisia in a deplorable economic situation. According to the report “Re-thinking the Arab Spring”, published by Geopolicity in October 2011, the cost of the uprisings in Tunisia are estimated at $2.03 billion, which counts for 5.22% of the GDP. (http://www.geopolicity.com/upload/content/pub_1318911442_regular.pdf)

The experts who put together the report classified the countries affected by the “Arab Spring” as economies projected to be either net economic losers or net economic winners. Expanding on this theory, Tunisia, Yemen, Egypt, Libya and Syria are in the category of countries losing most with few winners.

In the following paragraphs, we will examine the impact of the riots on several economic indicators such as unemployment, inflation rate, government spending, general debt and investment. In addition, a team of experts of the International Monetary Fund posted estimates of a set of economic indicators for 2011-2016.  This information will give us a rough estimate of the future picture of Tunisia’s economy.  We will begin our analysis by examining the impact of the “Arab Spring” on the economic indicators mentioned above.

1. Impact on unemployment and on inflation rate. In Tunisia, 13% of people who are in the labor force are currently unemployed, youth unemployment exceeds 26% and the unemployment among recent graduates keeps growing day by day. The Economist posted an article which states that people are also frustrated because the distribution of wealth is uneven between the rich cities and the poor rural areas, also making the distribution of job opportunities unbalanced(http://www.economist.com/node/17862305). Inflation rate in 2009 was 3.7%, reaching 5% in 2011. The increases in unemployment and inflation rate are factors that aggravate the economic situation.

2. Government spending and general debt.  As a consequence of the protests, the government expenditures increased (US$746 million), altering the fiscal balance by US$489 million. Other indicators such as the gross national savings decreased by 2 % in just one year; external debt also grew by $4 billion, the budget deficit reached 8.5% of the GDP, and industrial production for 2011 registered a 0% growth. (https://www.cia.gov/library/publications/the-world-factbook/geos/ts.html)

3. Investment.  The newly elected National Constituent Assembly has a set of challenging tasks to accomplish: apart from lowering the unemployment rate, reducing the budget deficit and regulate the fiscal system, the Assembly must increase investment and business development. International Monetary Fund (IMF) data presents that investment percentage share to GDP decreased from 26.4 to 25.3. Christine Lagarde, the managing director of the IMF expresses her opinion on this matter: “Fiscal deficits have widened, which raises concerns about sustainability. It pushes up interest rates, which makes it harder for the private sector to get credit to set up or expand businesses and start hiring people”(Lagarde, http://www.imf.org/external/np/speeches/2011/120611.htm).

According to Lagarde, the government should change its fiscal policies so it would generate funds for business development, infrastructure, education and health. It is of primary importance for the private sector to collaborate with the government to promote investment and competitiveness and to reduce the level of corruption that grew from 4.3 in 2012 to 3.8 in 2011(the ten scale indicates the following: 10-very clean, 0-highly corrupt, http://cpi.transparency.org/cpi2011/results/#CountryResults). According to Lagarde, the IMF is currently helping Tunisia to strengthen the financial sector, one of Tunisia’s economic strategic initiatives.

Data shows that other factors such as GDP and GDP per capita seem not to be affected by the riots. GDP rose from 2010 by approximately $2.3 billion. GDP per capita shows a slight increase as well. (http://data.worldbank.org/indicator/NY.GDP.MKTP.CD)

Lastly, we will discuss the future economic situation in Tunisia by analyzing the estimated indicators provided by the IMF. The situation looks promising if we look at the data: GDP per capita will double by 2016; the share of total investment to GDP is expected to increase by 3%. Government expenditure is expected to fall by 2016, while government revenues will not present major fluctuations. Unemployment rate is expected to drop by at least 1% and gross national savings are expected to grow by 5%. It is important to note that these economic milestones can be reached only through democratization and economic liberalization.

http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/weorept.aspx?sy=2009&ey=2016&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=64&pr1.y=6&c=744&s=NGDPD%2CNGDPDPC%2CNID_NGDP%2CNGSD_NGDP%2CPCPI%2CPCPIPCH%2CTMG_RPCH%2CTXGO%2CTMGO%2CLUR%2CLP%2CGGR_NGDP%2CGGX_NGDP%2CGGXWDG_NGDP%2CBCA%2CBCA_NGDPD&grp=0&a

 

 

 

 

Tourism and Investment

The Arab Spring had many negative economic impacts in the Middle East and North Africa. I will focus on Syria. Syria was one of the last countries to experience these negative effects but may be the country that withstands the lasting effects of the Arab Spring the longest. The impact of the Arab Spring negatively affected the economy and reduced the income flow because of the lack of investment and the diminishing number of tourists traveling to Syria.

Strikes, marches, rallies, and protests took place in Syria. The people involved in the Arab Spring fought against violations to their human rights, government corruption, extreme poverty, and dictatorship. Unrest between the government and the Syrian people caused the U.S. and British governments to advise tourists to stay away from the Middle East and North Africa. Big investors held onto their money and did not invest in big projects. There was fear of the economy tanking and high risk of not receiving any return on their investment. Tourists feared travel to Syria because of confrontation between the people and the government. They took their currency elsewhere.

Tourism accounts for 12% of Syria’s GDP and directly impacts more than 10% of the total employment. Since the protests began, the tourist sector of the economy took a tremendous hit. In 2010 the Syrian economy had over 8.5 million tourists, which brought in $8 billionof foreign currency. Syria experienced hardly any tourism in 2011 and lost a large supply of income. Tourism is a proven aspect of an economy that encourages job creation and develops communities. Hotels and restaurants are two goods that tourists consume the most. Those two goods combined employ 928,703 people in the Syrian economy, which is the largest sector of employment in Syria and the government invests in tourism. The decrease in tourism will directly affect the amount of revenue that those two goods receive and will eventually lead to businesses firing workers. This will ultimately increase the unemployment rate, decrease output and consumption, and lowers the countries GDP. The future growth of the economy depends on tourism and without it Syria’s economy will decline.

Tourism not only brings people and money to an area but also influences investment. When tourists travel they bring their foreign currency with them. That currency is then used to buy imported goods and services. The Syrian government depends on foreign currency because it leads to foreign investment, and the Syrian economy relies on foreign investment to move towards open markets. If the Syrian economy wanted to move towards open markets they would need to encourage foreign investment. Since stability in the economy is diminishing, big investors are holding onto their savings. Until the economy improves investors will not risk losing potential income.

Tourism and Investment are two aspects of the economy that contribute to growth. Syria may be in for the long hall because people are still unhappy and their protests are still ongoing. Changes to their government have been made but not in the ways that a growing economy wants. With tourism and investment very low, the economy may be in for a continuous downward spiral.

 

 

 

Egypt and the Economic Implications of the Arab Spring

From one the first days of protests in Egypt January 25st 2011 in Tahrir Square, it was more than apparent change was coming. Over a year after 30-year reigning President Hosni Mubarak stepped down, who knew lasting changes would feel so… slow? Parliament was dissolved, the constitution was suspended, and the Armed Forces of Egypt assumed power. But according to Esraa Abdel Fattah the “Facebook Girl”, the “Mubarak regime” lingers and life is not better in the country compared to last year (Staff 2011).

While fair elections were held, the Muslim Brotherhood came out on top of the elections. As this replacement parliament works on drafting a new constitution, violence against peaceful protests and conflicts continue in the streets.  Unrest at this point is waiting to be sparked by anything; one such flicker is due to ruling generals (Scaf) unwilling to surrender power. The balance of power in Egypt may leave many citizens, especially women between a rock and a hard place.  The presence of the Muslim Brotherhood will keep a dominating Islamic residual meaning that state will still favor religious influence and the two will not be separated. On the other hand, military control as experienced for nearly ten months after Mubarak was forced to resign his position became an evil at the behest of “supra-constitutional principles” putting military control before civilian politics (Staff 2011).

Since these protests, over-takings, disbandings, and violence are not unique to Egypt as the macro economic effect of the Arab Spring on the region has been very noticeable. Egypt’s GDP in mid-2011 was expected to see a 2.5% fall, in addition to Tunisia, Syria, and Yemen GDP contractions (Martin 2011).  The only country expected to have expanding GDP growth was Bahrain with a 2.5% increase, its slowest pace of growth since the 1990’s (Martin 2011).

The biggest hit on any of Egypt’s sectors is to tourism, which accounted for 6% of GDP in 2010. More importantly, this sector accounts for between 10 and 15% of employment in the labor force (AFP 2012). Due to violence, protests, and fear, tourism has seen significant decreases in visitor arrivals (down 33%), duration of time spent in Egypt (down 23% from 141 million nights in 2010 to 114 million in 2011), and dollars spent per day while visiting (down to $72 per day compared to $85 in 2010) (AFP 2012).

This hit to the tourism sector has been a part of the significant increase in unemployment over the past year. Beginning January at about 9% unemployment in October 2011 has been measured at 11.9% (www.tradingeconomics.com 2011). What I believe is not represented in any of this data is the unemployment of day workers in these major cities, lower class citizens that receive unmeasured benefits from high levels of tourism for various reasons.

Egypt’s deficit was expected to be 12.5% of GDP in 2011, and expected value of the Egyptian pound to decrease by 20%.

This inflation has been addressed by the Central Bank of Egypt, which stepped in and used significant reserves to prop up the value of the pound, rather than let it fall to its real value (Salah-Ahmed and Daily News Egypt 2012). While the allocation of reserves has been denied by some; it may be a smart (short-term) move in order to keep relative prices from rising too quickly. As long as inflation is still occurring, steep increases will lead to shoeleather costs from reduction in individual daily cash holding, as well as menu costs that can affect the variability of relative prices in the long run and create inefficient allocations of resources.

While it will undoubtedly take a long time to regain a stable economic environment, the most significant help will come from an established and widely supported government.

Yemen: the Economy and Social Unrest

Early 2011, following the Tunisian and Egyptian uprising “thousands of Yemenis have been demonstrating in the capital Sanaa, calling on Ali Abdullah Saleh, president for 30 years, to step down.”[1] Amidst all the clamor of the Arab spring uprisings, “trade and industry grind to a halt, tourism dries up and the economy in general stagnates and normal economic life ceases to function.”[2]

Social turmoil is only the climax of the country’s persistent long-term economic decline. Yemen is one of the poorest countries in the Arab world, with an income of $1,300; almost half of Yemeni population lives on less than $2 per day. The country also has a bad record on the human development front with a 54% literacy rate and a 62-year life expectancy. Its unemployment rate stands at 16.5% but is estimated to be much higher with almost half the youth unemployed.[3] Its economy is weak and has been dependent on oil, “petroleum accounts for 25% of GDP, 70% of government revenue, and more than 90% of Yemen’s exports.”[4]

“The economy is in shambles and that is not a temporary crisis. But there is something fundamentally wrong with the economy, especially when Yemen is running out of oil and water,”[5] says Marina Ottaway, a democracy expert at the Carnegie Endowment for International Peace. On top of which, is the reality that Yemen is a country that imports its food and according to the World Food Programme (WFP), “the price of wheat flour has almost doubled in the past month. And while food shortages are not an immediate danger, aid agencies worry fewer people will be able to afford basic food.”[6]

With the heightening social unrest and uprisings, Yemen becomes a high-risk environment for investors. Couple that with the threat of civil war about to break at any time and what happens is “people are hoarding. They are buying supplies for two months ahead just in case.”[7] Food prices are rising, and with too much money chasing too few goods, the inflation rate becomes higher. Since the majority of the population is involved with protests, the result would be a decreasing labor-force participation rate. And with oil running out, government revenue decreases. Ultimately, national income is hurt in all sides of the equation.

While the Arab Spring may have made the country’s economic situation worse, with an economy that is already staggering upon its heels in the first place, its people have little incentive to remain subdued. As the analysts from the Carnegie Endowment for International Peace had concluded, “it’s not surprising that Yemen has failed to achieve political legitimacy and establish a productive economy.”[8]


[1] “Yemen Protests: ‘people Are Fed up with Corruption’,” BBC News, http://www.bbc.co.uk/news/world-middle-east-12298019 (accessed February 17, 2012).

[2] Sally Kelly, “The Economic Impact of the Arab Spring On the Region,” The Palestine Telegraph,http://www.paltelegraph.com/economics/world-economics/9410-the-economic-impact-of-the-arab-spring-on-the-region.html (accessed February 17, 2012).

[3] “Yemen: Economic Roots of Social Unrest in Yemen,” LA Times,http://latimesblogs.latimes.com/babylonbeyond/2011/03/yemen-economic-roots-unrest-social-yemen-president-saleh-protests-arab-.html (accessed February 17, 2012).

[4] “Yemen: Economic Roots of Social Unrest in Yemen”

[5] Mohamed Elshinnawi, “Political Stalemate Threatens Civil War For Yemen,” Voice of America,http://www.voanews.com/english/news/middle-east/Political-Stalemate-Threatens-Civil-War-for-Yemen-131600608.html (accessed February 17, 2012).

[6] “Yemen Revolt: Collapsing Economy ‘is Major Threat’,” BBC News, http://www.bbc.co.uk/news/world-middle-east-12976946 (accessed February 17, 2012).

[7] “Yemen Revolt: Collapsing Economy ‘is Major Threat’,”

[8] “Yemen: Economic Roots of Social Unrest in Yemen”