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Impact of the Arab Spring on Tunisia’s Economy

February 20, 2012 by

Tunisia’s Economy : After the Arab Spring

Naman Jain

 

Tunisia is a country located in Africa, and also constitutes the Arab League. It was one of the countries where protests had taken place last year; the protests that had led to the coinage of the term – Arab Spring. According to Amara, the aftermath of the Arab Spring in Tunisia has seen a decline in the speed of “investment”, an increase in “unemployment”, and the fall of tourism ; and it is claimed by “businessmen and government officials” that this condition in Tunisia is due to the “strikes” and “sit-ins” carried out by Tunisians. Yet, it seems unfair to stem the blame on the sit ins, as the Tunisians did so for a better future. Unfortunately, the economy suffered because of that. Amara also says that the people in Tunisia, whose GDP is similar to that of the Dominican Republic, are causing the very “problems” that they are “protesting” against, and these problems involve “poverty and unemployment”. Amara says that Tunisia saw “shrinking of the economy”, increase in the “unemployment rate”, and its tourism sector, “Tunisia’s biggest source of foreign currency”, being hit; all by pretty significant numbers. Amara says “It [“the new government”] has secured billions of dollars in loans and aid from foreign governments and international institutions to get it through the slump. The prime minister . . . travelled to the past week’s World Economic Forum in Davos, Switzerland to tout for investment.” He says that the “unrest” is serving as a barrier to the government’s idea of “public investment targeting the poorest and most restive parts of the country” which according to “Employment Minister Abdel-Wahab Maatar” would lead to the “creation” of jobs – around 250,000 in “public and private sectors”.  The evidence shows that unfortunately, the unrest is the main obstacle to a strong economy in Tunisia in the post – Arab Spring world.

An article in The Economist titled “Arab spring economies : Unfinished business” says “Tunisia saw its GDP growth in 2011 go from 3% to 0%, according to the IMF – the Tunisian government says the economy actually contracted by 1.8%”(49). Such a steep downfall in the growth of GDP certainly indicates the poor condition of the economy that post – Arab Spring Tunisia has. The article says “There are four main reasons for the economic downturn in the post-revolution countries”(49). The article says that these reasons are “instability” because it “has driven away customers and undermined business confidence” ; “strikes” ; “poor state of the government machinery” ; and “the chill that has descended over all businesses connected to the previous rulers, especially privatised ones” (49-50).  An article on the United Arab Emirates based The National written by Farah Halime says “Unemployment is a huge problem in Tunisia, with about 700,000 jobless in a population of approximately 10.6 million.” Halime also says “Tourism, a vital driver of employment and foreign currency earnings, was down by as much as 50 per cent after the revolution, government statistics showed”. This can be described as another impact of the Arab Spring on Tunisia’s economy.
The one factor that one can look at is the GDP of Tunisia. Mankiw says “Gross domestic product, or GDP, is often considered the best measure of how well the economy is performing”(18). If Tunisia’s GDP has fallen so drastically, it obviously indicates that the economy is not doing well after the Arab Spring struck Tunisia. However, one must also consider unemployment in Tunisia as an economic impact of the Arab Spring.
A nuqudy.com article says “Tunisia’s budget deficit should rise to 6% of GDP in 2012 from an estimated 4.5% in 2011 as the government plans to increase spending in an attempt to reinvigorate the economy which was severely hurt by the effects of the revolution”. It says “The budget also forecasts a GDP growth of 4.5% in 2012, well above the 0.2% which was estimated for 2011. Furthermore, the government expects the economy to create 75,000 thousand jobs.” The article from The Economist says “Tunisia’s government has vowed to raise growth to 8% and reduce unemployment from 19% to 8.5% by 2016”.  The difference from 19% to 8.5% seems extremely impressive, and it would be great for the Tunisian economy if the government can achieve the lowering of the unemployment rate.
We can hence say that Tunisia’s economy was impacted severely by the Arab Spring. Tunisians must work hard in helping their economy recover after the revolution, in achieving what they as citizens want for their country.

Works Cited

Amara, Tarek. “FEATURE – Tunisia’s economy still awaits post-revolt bounce.” Reuters 1 February, 2012. Web. 17 February, 2012. http://www.reuters.com/article/2012/02/01/tunisia-economy-idUSL5E8CO1XC20120201.

“Arab spring economies: Unfinished business.” The Economist 4 February, 2012: 49-50.

Halime, Farah. “Tunisia’s new goal – show how to build economy after revolution.” The National 23 October , 2011. Web. 17 February, 2012. http://www.thenational.ae/thenationalconversation/industry-insights/economics/tunisias-new-goal-show-how-to-build-economy-after-revolution.

Mankiw, N. Gregory. Macroeconomics: Seventh Edition. New York: Worth Publishers, 2010. Print.

“Tunisia’s budget deficit to rise to 6% of GDP.” nuqudy.com 4 January, 2012. Web. 17 February, 2012. http://english.nuqudy.com/General_Overview/North_Africa/Tunisias_budget_def-477.

 

Filed Under: Feature, Student Post, Tunisia Tagged With: ,

The “Arab Spring” and Egypt

February 20, 2012 by

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

Filed Under: Egypt, Feature, Student Post Tagged With: ,

Economic Impact of the Arab Spring in Tunisia

February 20, 2012 by

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

 

 

 

 

Filed Under: Feature, Student Post, Tunisia Tagged With:

Algeria and the Impact of the Arab Spring

February 20, 2012 by

Although the Algerian government was not overthrown in the Arab Spring, and remains in place today, the country was greatly impacted by this time of demonstrations and revolutions.  There were protests in Algeria, against the high prices of food, and the high rate of unemployment. The Algerian government saw what happened in other countries, and worried that it might happen to them as well, so began to take steps to limit the discontent of the population. As this discontent as due in a large part high food prices and a high unemployment rate, the government took steps to help improve the economy.  Thus, the Arab Spring had an important impact on Algeria.

In early January 2011, riots broke out in Algeria over the increase in the cost of food, which had greatly increased, and become difficult to afford. [1] To counter these protests, and placate the population, the government instituted some protectionist policies, subsidizing important food staples such as milk, sugar, oil and flour. [2] Subsidies are a complicated part of a policy maker’s toolbox. On one hand, they protect and nurture domestic business, preventing them from being dominated by competitors on the international market.  From an economic realist’s perspective, this is very good, because then in a time of crisis, the security of your state won’t be dependent on others, and what they chose to import to your country. However, they are not popular in the eyes of other countries, who may want more free and open trade, so their industries can dominate where they have a comparative advantage. Because of these twofold implications, this is a tool that must be used carefully.

As well as instituting subsidies, the government also greatly increased general public spending in 2011. [3]  That year, government spending went up by around 27%.[4]  Government spending is one way the economy can be stimulated, as it is one of the components that comprise GDP. An increase in government spending can also go towards providing important services to those in the populace who need them.

In 2012, the government is concentrating on improving public services, as well as trying to increase wages.[5]   For civil servants in the public sector, wages went up by 34%.[6]  This could greatly help the economy by creating more consumption. When people have more income, they are more likely to spend it. This could help stimulate the economy and lead to an increase in the demand for workers, to help cope with the new, increased demand for more goods.

In the aftermath of the protests of the Arab Spring, the government is greatly focusing on one of the large problems facing Algeria today, unemployment. This was an issue at the heart of many of the riots and demonstrations that shook the country. According to the official government figures, the unemployment rate is around 10%, although some international estimates double this figure.[7] The youth unemployment rate is also incredibly high, at with nearly a quarter of all young people between the ages of 15 and 24 unemployed.[8]  The Algerian government is spending 178 billion dinars on supporting employment in Algeria.[9]  Many international observers believe that to effectively grow the economy, the government needs to diversify, as the oil and gas sectors that form a huge part of the Algerian economy provide too few jobs.[10]

The Algerian government broke up protests with force, and then tried to break the will of the protestors with some economic concessions.[11] They put subsidies into place, and increased spending with a $268 billion dollar five year economic plan.[12] They also increased wages in the public sector, and poured billions of dinar into job creation. While the foundations for some of these actions may have been laid in the past, these policies were all implemented as a direct result of the Arab Spring, and the government’s need to placate its population to keep them from rebellion.

[1] Roberts, Hugh. “Algeria’s National ‘protesta’.” Forgien Policy. January 10, 2011. <http://mideast.foreignpolicy.com/posts/2011/01/09/algeria_s_national_protesta.>

[2] Salhi, Hamoud. “Is Algeria Immune from the Arab Spring?” BBC. July 27, 2011. <http://www.bbc.co.uk/news/world-africa-14167481.>

[3] Arieff, Alexis. “Algeria: Current Issues.” Congressional Research Service. January 18, 2012. <http://www.fas.org/sgp/crs/row/RS21532.pdf.>

[4] “Loi De Finances2012: Des Mesures Pour Developper La Production Nationale.” Ministère Des Finances. http://www.mf.gov.dz/article/2/A-la-Une/199/Loi-de-finances2012:-des-mesures-pour-developper-la-production-nationale.html.

[5] Ibed.

[6] Salhi, Hamoud

[7] Background Note: Algeria.” U.S. Department of State. January 23, 2012. <http://www.state.gov/r/pa/ei/bgn/8005.htm.>

[8] Arieff, Alexis.

[9] Loi De Finances2012: Des Mesures Pour Developper La Production Nationale.”

[10] “Algeria Must Tackle Youth Unemployment: IMF| Reuters.” Reuters.com. January 26, 2011. <http://af.reuters.com/article/investingNews/idAFJOE70P0IT20110126.>

[11] Arieff, Alexis.

[12] Ibed.

Filed Under: Algeria, Feature, Student Post Tagged With: ,

Yemen: Will freedom lead to economic freedom?

February 20, 2012 by

Removal of Mr. Saleh was a prerequisite for economic reforms in Yemen. In this article, I will try to explore how regime change altered direction of some Macroeconomic variables such as Government Spending, Investment Freedom, Financial Freedom and Monetary Freedom. In order to make a case, I am using data from World Heritage Foundation which provides an index for each of these variables and also provides change in trends from preceding years.  In order to better understand the economic trends, I will individually look at these indexes, define what is captured in these indexes and provide my analysis for why particular economic variables choose to move in certain direction.

During the Arab Spring Government Spending decreased significantly. Heritage Foundation quantifies as Government Spending. According to Heritage Foundation Government Spending considers the level of government expenditures as a percentage of GDP. Government expenditures, including consumption and transfers, account for the entire score. One of the reasons for declining Government Spending as quoted by The Economist is attacks by angry tribes on oil pipelines that made it more expensive to produce and transport food and water. The government had to import fuel, doubling its monthly import bill to around $500m. The tax take, never large, has vanished. Central bankers are under pressure to raid reserves, said to be around $4.5 billion. Factories were shut because they lack fuel. Countless casual jobs have been lost.”

Since most of Yemen National Income was coming from oil revenue, the Arab Spring made it impossible to use these resources amidst civil disobedience. After the crisis, we did not only saw an increase in Government Spending but also that most of it was moderately fair. As data suggests, Couple of years before the Arab Spring, Government Spending remained between 50-60 points. After 2011, there was a sharp increase in government spending which currently stands at 62.4 points and is considered “moderately fair”.

Investment Freedom in Yemen has decreased during and after the Arab Spring. There was a decline from 50 to 45 points. In early 2000’s the Investment Freedom in Yemen was at a low of 30 points falling under repressed category. Individuals and firms were not allowed to move their resources freely and quickly into specific industries both internally and across borders. The key factors that provide constrain to investment freedom are political security, infrastructure, capital transaction, and labor regulations. With the advent of Arab Spring most of these variables were driven down in negative direction specifically political security and infrastructure which decreased investment freedom in Yemen. Some of the implication of this will be that there will be less Investment making the economy less stimulus and rather static.

Financial freedom during and after the Arab Spring remained at the same level. The Index scores an economy’s financial freedom by looking into the following five broad areas:

  • The extent of government regulation of financial services,
  • The degree of state intervention in banks and other financial firms through direct and indirect ownership,
  • The extent of financial and capital market development,
  • Government influence on the allocation of credit, and
  • Openness to foreign competition.

Since the index score remains the same, it can be argued that during the Arab Spring, there have been no structural changes in the government or financial institutions. With the changes in the government, we might see the graph rise in the long run.

The monetary freedom during the Arab Spring increased significantly. There was a jump from 65.1 to 82.2. The score for the monetary freedom component is based on two factors:

  • The weighted average inflation rate for the most recent three years and
  • Price controls.

Considering the crisis, the weighed inflation is expected to increase due to bad business conditions in Yemen. There also seems to be less price control on goods and services as inflation drives up prices. It is also interesting to notice that as soon as crisis are over, there is a sharp drop in Monetary Freedom showing stabling conditions of the economy.

Over all, there are two important indications of economic trends in Yemen. Economic variables that depend on individual and free market operations have seen an upward trend. Variables that are dependent on government or structural reforms have either remained the same or moved in negative direction. In order to address these challenges, revolutionary energy needs to be converted into structural rebuilding of the economic model.

 

Usman Shabbir.

Filed Under: Feature, Student Post, Yemen Tagged With:

Impact of Arab Spring on Bahrain

February 20, 2012 by

On February 14, 2011, people in the United States were giving chocolate and flowers to their loved ones. They bought Hallmark cards with sappy poems. In Bahrain the mood was much different; it was the first of the Arab Spring protests. Hallmark does not make cards celebrating ones first protest.

The first demonstration, known as a “Day of Rage” was organized by activist through social media sites, like Facebook and Twitter. They were protesting discrimination against the Shias by the Sunni dynasty and the disrespect for human rights. The activists wanted a new constitution and a democratically elected government. Police forces responded to the protestors by firing teargas and rubber bullets.

Within one year after that first day of protesting, 1,600 peaceful protestors were arrested, more than 100 people convicted, and 35 people died due to violence from police responses (http://www.crin.org/violence/search/closeup.asp?infoID=26590). Of all the riots in the Arab world in 2011, Bahrain’s government was the only one to temporarily succeed through force. However, doing so may have destroyed the society’s sense of a single community and the dozens of protests hurt Bahrain’s economy.

There has been a direct loss to the economy. The chairman of the Bahrain Chamber of Commerce and Industry, Essam Fakhro, estimates that Bahrain has lost over $2 billion. The GDP and public finance have decreased $391 million and $690 million, respectively (http://www.geopolicity.com/upload/content/pub_1318911442_regular.pdf). The cost of the Arab Spring to Bahrain’s economy is relatively low because of its stable oil production, which contributes 30% to the GDP. Public expenditure increased by $2.1 billion because the government gave each family $2,660 in an attempt to improve living standards and compensate for the declining economy (http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/cost-of-arab-spring-more-than-55-billion/article2201119/). However, by giving families money, inflation will rise because the money supply increases. The compensation will hurt the Bahrain family and their economy in the long run more than it will help.

Due to the unrest, many events were cancelled. Most noticeably, the Bahrain Grand Prix, which was scheduled for March in 2011, was cancelled (http://latimesblogs.latimes.com/babylonbeyond/2011/06/bahrain-formula-1-boss-says-grand-prix-postponed.html). The Bahrain Grand Prix is a Formula One championship race and is the first to take place in the Middle East. Since the first race in 2004, it has greatly contributed to Bahrain’s economy. The race generates around $220 million through ticket sales, television coverage, transport, accommodation, food, and merchandise. There was no Grand Prix in 2011, which means Bahrain did not get the money they anticipated.

In 2010, Bahrain had extremely high economic openness (http://arabnews.com/economy/article477485.ece). Its economy was open to trade and inflows and outflows of international investment. After the uprisings in 2011, Bahrain’s degree of openness decreased because other countries did not want to interact with them. The smaller a country, the more open its economy should be. Small countries must specialize in the production of few goods or services to be competitive and attain optimal scale. Therefore, they must export those goods and import the goods they do not produce. An open economy is needed for these transactions.

The Arab Spring created uncertainty for the economy. Bahrain suffered dramatically from the protests and unrest and it will require a lot of effort from the government to recover. It is widely believed to rebound in the near future; however, a full recovery may not be possible if the citizens continue their anti-dynasty protests. Bahrain may never be a financial hub again.

Filed Under: Bahrain, Feature, Student Post Tagged With: ,

The Syrian Oil Sector

February 18, 2012 by

The Syrian Oil Sector

Since Bashar al-Assad succeeded his father in the presidency of the Syrian Arabic Republic, his regime has attempted to reform its centrally planned economy so as to, among other things, reduce dependency on the oil sector.  For instance, it sought to increase foreign investment in the service sector by lowering interest rates[1].  Foreign direct investment did increase substantially between 2001 and 2010, from 110,000,000 USD to 1,469,196,863.5 USD[2], but by 2009 the economy was still heavily dependent on oil production and exports.  According to the most recent data, in 2009 Syria’s oil revenue accounted for 25% of GDP, and 35% of government income[3].

Prior to the chaos which began in 2011, Syria was able to garner important investment from China.  The two largest investment ventures made by China were in the Al Furat Petroleum Company (20.3% share) and the Syria Shell Petroleum Development (35% share)[4].  Today, considering the international investment and export embargo Syria faces, Chinese investment in Syria’s oil sector plays a critical role in determining the course of its economy.

Since the first protests of January 26, 2011, conservative estimates have it that 5,400 Syrians have been killed while 70,000 have been displaced[5].  In response to President Asad’s humanitarian crimes and his continued unwillingness to compromise with the United Nations in terms of policy change, the U.S., the European Union and the Arab League have implemented economic sanctions targeting, in particular, the Syrian oil sector.  Not coincidentally, it is on Syrian oil production and exports that the sanctions have been particularly devastating.  On August 17, 2011, President Obama signed Executive Order 13582, prohibiting the importation of Syrian oil[6]. The E.U. followed suite on September 2, targeting government owned oil companies[7].  In December, the E.U. sanctioned additional state owned oil companies as well as Syria’s largest producer, the joint venture company Al Furat Petroleum Corporation (AFPC)[8].  Foreign investors own 50% of AFPC: 29.7% by Shell, and 20.3% by China’s CNPC.  Shell has ceased its share of production in compliance with E.U. sanctions[9]. Whether CNPC will continue production is largely dependent on ongoing political relations with the U.S., the E.U., and Russia.

Compared with U.S. sanctions, those implemented by the E.U. had far more catastrophic consequences for Syrian oil exports and production; in 2010, 99%[10] of Syrian crude oil exports (109,000b/d) went to members of the European Union[11]. Though the regime wants to keep a positive face on things so the populace doesn’t redeposit all its cash in foreign banks, some ministers tell it how it is.  Later on in December, after the E.U. castrated AFPC and Shell complied with the embargo, Syrian Oil Minister Sufian Alao lamented the effects the sanctions have had on the economy: “We have reduced our production by 30 to 35% until we resume exports.” [12]  He also noted that current oil output had fallen to about 260,000 b/d.  Last month, the Syrian Minister of Petroleum estimated that international oil exportation sanctions have depleted government coffers by $2 billion[13].

In 2009, Syria’s oil revenue accounted for 25% of GDP, and 35% of government income[14].  Given that the tourism industry (another major sector of the Syrian economy along with agriculture) is dead, the contribution of oil revenue to GDP and government revenues is even more critical.  Syria must find buyers to compensate for the 99% gap in oil exports left by the E.U. countries.

Before the protests, the rebellion of the Free Syrian Army, the ensuing slaughter of innocents by the regime and the E.U. sanctions, the oil sector was heavily dependent upon foreign investment, particularly that of China National Petroleum Corporation  (CNCP).  Syria’s ‘Arab Spring’ has seen oil exports drop dramatically because of sanctions.  Critically, China retains its portion of Al Furat Petroleum Corporation and Syria Shell Petroleum Development, and is effectively (while Damascus still searchers for new importers) the Assad regime’s life blood.  If China were convinced by the west to join the embargo, the regime would fall more quickly and with less blood spilt.  While it is the case that China follows noninterventionist policies, either way Syria’s fate hangs on that of its oil sector.

 

 

 

[1] U.S. Department of State, “Background Note, Syria,” U.S. Department of State, http://www.state.gov/r/pa/ei/bgn/3580.htm, (accessed February 17, 2012.)

[2] The World Bank,”World Bank Search, Syria,” http://search.worldbank.org/data?qterm=Syria&_topic_exact%5B%5D=Economic+Policy+%26+Debt&os=10, (accessed February 17, 2012.)

[3] U.S. Department of State, “Background Note, Syria,”  U.S. Department of State, http://www.state.gov/r/pa/ei/bgn/3580.htm, (accessed February 17, 2012.)

 [4] China National Petroleum Corporation, ”CNCP in Syria,” CNCP, http://www.cnpc.com.cn/en/cnpcworldwide/syria/, (accessed February 17, 2012.)

 [5] The New York Times, “World, Syria”, The New York Times, http://topics.nytimes.com/top/news/international/countriesandterritories/syria/index.html?scp=1-spot&sq=syria&st=cse, (accessed February 17, 2012.)

 [6] U.S. Department of the Treasure, “Presidential Documents, Blocking Property of the Government of Syria and Prohibiting Certain Transactions With Respect to Syria”, U.S. Department of the Treasure, http://www.treasury.gov/resource-center/sanctions/Programs/Documents/syria_eo_08182011.pdf, (accessed February 17, 2012.)

 [7] Official Journal of the European Union, “Corrigendum to Council Regulation (EU) No 878/2011 of 2 September 2011 amending Regulation (EU) No 442/2011 concerning restrictive measures in view of the situation in Syria ( OJ L 228, 3.9.2011 ),” European Union, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2011R0442:20111014:EN:PDF, (accessed February 17, 2012.)

 [8] Day Press News, “Shell to apply EU sanction on Syria,” Day Press News, http://www.dp-news.com/en/search_en.aspx?cx=001721001860200103495:mz6crj7jewo&cof=forid:9&ie=utf-8&q=al%20furat&siteurl=http://www.dp-news.com/en/search_en.aspx, (accessed February 17, 2012.)

 [9]Javier Blas, “Shell to quit Syria after EU extends sanctions,” Financial Times, http://www.ft.com/intl/cms/s/0/bc9dae8a-1cd1-11e1-a134-00144feabdc0.html#axzz1mc631N00, (accessed February 17, 2012.)

 [10] Syria Today, “Syria to Barter Wheat for Oil and Phosphate,” Syria Today, http://www.syria-today.com/index.php/business/18447-syria-to-barter-wheat-for-oil-and-phosphate-, (accessed February 17, 2012.)

 [11]U.S. Energy Information Administration, “Countries, Syria, Background”, U.S. Department of Energy, http://205.254.135.7/countries/cab.cfm?fips=SY, (accessed February 17, 2012.)

 [13]U.S. Department of State, “Background Note, Syria,” U.S. Department of State, http://www.state.gov/r/pa/ei/bgn/3580.htm, (Accessed February 17, 2012.)

 [14]Ibid

Filed Under: Feature, Student Post, Syria Tagged With: ,

Arab Spring Libya and Unemployment

February 17, 2012 by

The Arab Spring, a wave of revolutionary protests and demonstrations that has swept much of the Arab world since late 2010, has been a test to the stability in the Middle East region. Motivations behind the social movements have varied, including dissatisfaction with the governing institution (i.e. dictatorship, absolute monarchy), human rights violations, government corruption, economic decline, unemployment, extreme poverty, and demographic structural factors (i.e. youth dissatisfaction despite high education rate). Manifestations of discontent have also ranged in extremity from outright revolutions in Tunisia and Egypt, a civil war in Libya, civil uprisings in Bahrain, Yemen, and Syria, major protests in Algeria, Iraq, Jordan, Kuwait, Morocco, and Oman, and minor protests in Lebanon, Mauritania, Saudi Arabia, Sudan, and Western Sahara. Apart from the strategic importance the region holds, the Arab Spring has garnered the attention of the international community for the role contemporary factors, such as social media, has played into the movement’s progression.

It is inevitable that, despite the desired egalitarian focus that resides in the uprisings’ intentions, the social movements have, for the most part, translated into domestic instability, which poses problems to a state’s political and economic spheres. Not only does political instability alter the relations the nation-state has with other states in the global system, but economically, the instability of a state harms its balance of trade among, which, in turn, affects other economic factors. Among those include commodity prices, employment conditions, human capital retention, wages, investment, and consumption. The following is a discussion on the impact the Arab Spring has had on the state of employment and human capital in Libya.

Characteristic of Middle Eastern states, Libya is no exception as an oil rich state. It is a member of OPEC and holds the largest proven oil reserves in Africa. The Libyan economy is centrally planned, and is dependent on revenues from the petroleum sector, which account for approximately 95% of export earnings, 25% of GDP, and 60% of public sector wages. Despite favorable growth rates due to its primary commodity sector, it has been proven to be unsustainable as the country has reluctantly faced the consequences of economic recessions (falling oil prices) and international sanctions (export decline). To exacerbate potential economic instability, despite the government’s recent market orient reforms to diversify sectors and privatize some government owned companies, the state’s centrally planned tradition has resulted in three quarters of the workforce employed in the public sector, whereas a meager 2% investment in the private sector emphasizes the imbalance. The problem of unemployment would be exacerbated from this unsustainable economic system, which would be one of the underlying motivations for the Arab Spring to take root in Libya.

The Arab Spring in Libya came to focus with the 2011 Libyan Civil War. This was an ongoing armed conflict between those loyal to then leader Muammar Gaddafi and his regime, and those that sought to overthrow him. Dissatisfaction with the governing institution and lack of transparency, human rights violations, and economic decline with growing rate of unemployment, especially with the educated youth demographic, highlighted the persistent issue of unemployment in Libya. Although it is difficult to acquire the official unemployment rate in Libya, it was last estimated to be 20.74% in 2009, with over 50% unemployed under the age of 20. It is foreseeable that the Arab Spring has intensified the unemployment rate under the instability that resulted after the toppling of the Gaddafi regime and the subsequent transition of control under opposition forces, resulting in decline of capital investment and human capital flight. Part of the problem with Libyan unemployment is a result of a mismatch between education and productivity within its citizens. This has resulted in a demand for expatriate workers, whether less skilled or more qualified according to productivity level. While the Libyan government is transitioning, its approach to economic restructuring would determine whether the persistent problem of unemployment would be ameliorated.

Filed Under: Feature, Libya, Student Post Tagged With: ,

The economic impact of the “Arab Spring” in Bahrain

February 17, 2012 by

The Arab Spring is a series of revolutionary demonstrations that started in December 2010. These demonstrations have been in multiple Arab counties. These countries include Tunisia, Egypt, Libya, Bahrain, Syria, Yemen, Algeria, Iraq, Jordan, Kuwait, Morocco, and Oman, Lebanon, Mauritania, Saudi Arabia, Sudan, and Western Sahara. In this blog I am going to focus on Bahrain and how the Arab Spring has impacted its economy.

Bahrain’s economy depends heavily on oil. Petroleum production and refining account for more than 60% of Bahrain’s export receipts, 70% of government revenues, and 11% of GDP (exclusive of allied industries). Other major economic activities are production of aluminum – Bahrain’s second biggest export after oil – finance, and construction. [www.cia.gov]

Due to the Arab spring the economy of Bahrain has been affected as GDP has decreased, debt has increased, current account balance has decreased, government spending has increased, consumption has increased, and investments have decreased. [www.cia.gov]

According to the equation, GDP= C+I+G+ (X-M), GDP depends on consumption, Investments, government spending and net exports. If there is a change in these factors then GDP is also affected. Bahrain has a decrease in GDP per capita from $27500 in 2010 to $27300 in 2011. It also has a decrease in GDP growth rate from 4.1% in 2010 to 1.5% in 2011 [www.cia.gov]. This means that the Arab Spring has caused changes in the other four variables that determine nations GDP. [www.cia.gov]

Due to these demonstrations people are not able to invest as much as it were in a peaceful country.

The current account balance of Bahrain has decreased from $770 million in 2010 to $617.4 million.  Government revenues, $7.93 billion, are less than government expenditures, $8.297 billion, in 2011, and there is a -1.4% of GDP budget deficit in 2011. Public debt has increased from 60.1% in 2010 to 75.3% in 2011. External debt has also increased from $14.58 billion in 2010 to $15.2 billion in 2011. Imports have increased from $11.19 billion in 2010 to $16.8 billion in 2011. These show that government spending has increased. Exports have increased from $13.83 billion in 2010 to $20.23 billion in 2011 but the money that Bahrain is earning is not enough since it still has a deficit in its budget. [www.cia.gov]

In conclusion, the standard of living in Bahrain has decreased due to the Arab spring. The comparison of Bahrain’s 2010 and 2011 statistics show this decrease in standard of living and the negative impact on Bahrain’s economy.

 

 

 

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References

CIA world factbook:

https://www.cia.gov/library/publications/the-world-factbook/geos/ba.html

 

US department of state:

http://www.state.gov/r/pa/ei/bgn/26414.htm

Filed Under: Bahrain, Feature, Student Post Tagged With:

Syria-Effect of Sanctions on the Economy

February 17, 2012 by

One of the myriad of ways in which the Arab Spring has been affecting the economy of Syria is through the sanctions that have been imposed by outside organizations as a result of the government’s response to protesters. The  violent government crackdowns in the currently restless nation of Syria have in turn led to increasing international pressure  on the Syrian government. Many international organizations have condemned the crackdowns as vicious human rights violations and subsequently have called for the stepping-down of the Assad family, the dictatorial family that has ruled Syria for multiple generations (http://articles.latimes.com/2012/jan/26/world/la-fg-syria-economy-20120127). The European Union and the United States have already instituted sanctions, including the freezing of Syrian assets, and stopping trade with the area. Many viewed these Western groups as former colonial powers meddling in the Middle East and called for a regional solution rather than international condemnation. Recently, however, the Arab League has developed and initiated various sanctions as well, showing that the problem is being taken seriously within the region as well (http://www.bbc.co.uk/news/world-middle-east-17065056). The agency has been working hard in Cairo to try to find a solution that will get the middle and upper-classes to “break publicly with the regime.” This is maneuver is important in a number of ways. As a matter of national pride, Syria has often seen itself as the heartland of “Arabism,” so the fact that the Arab League has taken action against them is a sort of psychological  slap in the face (http://www.nytimes.com/2011/11/28/world/middleeast/arab-league-prepares-to-vote-on-syrian-sanctions.html?pagewanted=all).  Yet another possible insult is the Arab-requested and led resolution being voted on in the United Nations  General Assembly at the time of writing.  The resolution condemns the violence being taken and calls for the resignation of Bashar al-Assad.  At the same time, the delegations to the Arab League are trying to find a solution that hurts the wealthy but makes it possible for the middle and lower classes to still get the crucial items they need, such as lamp oil (for light) and food. Regardless of various exclusions, these sanctions have the potential to be extremely effective, as “Economists estimate that about 50% of Syria’s exports go to the Arab World, and 25% of its imports originate there, much of that from its immediate neighbors” (http://www.nytimes.com/2011/11/28/world/middleeast/arab-league-prepares-to-vote-on-syrian-sanctions.html?pagewanted=all). Despite these efforts, various Syrians, when questioned, provided criticisms, arguing that the wealthy will be fine, and that sanctions will only serve to hurt the average citizen (http://articles.latimes.com/2012/jan/26/world/la-fg-syria-economy-20120127).

The respective roles of Iran and especially Russia, will be important in determining at least in part whether or not these sanctions work. In the United Nations, China and Russia vetoed the resolution put forth by the General Assembly, with Russia concerned over forced regime change and the possible military commitments that may entail. Others share similar worries, and an unnamed government official from the Middle East was quoted in the New York Times as saying that the “war” against Syria would take place economically rather than militarily (http://www.nytimes.com/2011/11/28/world/middleeast/arab-league-prepares-to-vote-on-syrian-sanctions.html?pagewanted=all). However, in terms of the sanctions, Iran and Russia are “posed to provide aid to Syria to compensate for lost government revenues” (http://www.bbc.co.uk/news/world-middle-east-17065056). If these funds are supplied, the regime will be able to hold on for even longer. Whatever economic action taken by international bodies needs to be as unified as possible.

Looking at the sanctions more generally  is interesting because it reflects how different goods and services have sometimes drastically different levels of importance certain commodities have in different regions. In our macroeconomics class with Dr. Moledina we talked about the consumer price index, and how to compare the results. Although there can be either fixed or changing baskets over time, there is also important geographic and cultural differences to take into consideration. For example, if we were to consider what is important to those living in the United States, lamp oil would not be anywhere near the top of the list. Similarly, however, such a thing as gasoline is probably not important to the average  Syrian citizen if they do not have a car. Another way to approach the effects economically is to look at the supply and demand curve, and the subsequent shifts that could possibly take place because of the sanctions.  For example, if the supply of lamp oil suddenly faces a drastic decrease since Egypt will no longer be trading it, the demand would move upward (since the supply had shifted left) and the prices would skyrocket. Although discussing such things is akin to modeling from our removed perspective, these questions are very real and very important to anyone with involvement or assets in the Syrian economy.

 

Works Cited

MacFarquhar, Neil, and Nada Bakri. “Isolating Syria, Arab League Imposes Broad Sanctions.” The New York Times 27 Nov. 2011: n. pag. The New York Times. Web. 16 Feb. 2012.

“Syria crisis: UN assembly adopts Arab-backed resolution.” BBC News. BBC, n.d. Web. 17 Feb. 2012. <http://www.bbc.co.uk/news/world-middle-east-17065056>.

Zavis, Alexandra, and Alexandra Sandels. “Crisis takes toll on Syria economy.” The Los Angeles Times 26 Jan. 2012: n. pag. The Los Angeles Times. Web. 16 Feb. 2012.

Filed Under: Feature, Student Post, Syria Tagged With: ,
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