The effects of the “Arab Spring” on Libya’s GDP
The Arab Spring is a name given to the pro-democratic uprisings and revolutionary type demonstrations occurring in the Arab world. These protest have caused revolutions, civil uprisings, and even civil wars. The country that has arguably been affected the most by this movement is Libya. Not only did Libya experience a civil war with death tolls as high as 30,000 and a complete overthrown of their government, but also have suffered the worst losses in terms of GDP than any other country within the Arab Spring. Libya’s GDP has seen a loss of around 28.3% or approximately $6.5 billion. In order to fully explain the drastic change in Libya’s GDP, we must understand what exactly makes up Libya’s GDP and what factors have caused it to go haywire.
Every country follows the same guidelines when calculating their GDP. GDP is the sum of consumption, investment, government purchases, and net exports. In order for a country’s GDP to decrease over 28%, one if not all of the variables of GDP must also decrease to a great extent. In Libya’s case, all four variables saw decreasing values throughout the Arab Spring, which helps explain why their GDP was so highly affected. The question that arises from this is what factors caused the four variables to decrease?
Libya’s main export and what drives their economy is the oil industry. According to World News Australia, they claimed, “With around 46-and-a-half billion barrels, [Libya} holds Africa’s largest proven oil reserves and is the world’s ninth biggest. The oil industry contributes to 95 percent of export earnings in Libya; however, the civil war saw production come to a stop, and today it’s barely at one-quarter of total potential output.” So with Libya’s main export only producing close to 25% of its total potential output, we see a major decrease in their net exports, which is exports minus imports, and an overall decrease in the GDP.
The next variable that is seen taking a large hit is the consumption variable, which consists of the goods and services bought by households. According to Al Bawaba news, More than 740,000 people have fled Libya since the start of the severe conflicts and because of that local consumption has decreased. When a population is decreasing and a war is happening in the people’s backyards, consumption is not a major priority in their life. The people are focused on making it alive through each day and are only buying the necessary goods for everyday life. With the civil war occurring and the population fleeing, consumption is negatively affected.
Government purchases is the next aspect of a country’s GDP and it is the goods and services bought by the federal, state, and local governments. In Libya’s case, there is an obvious reason why this variable has decreased and that is because the public overthrew the government in the civil war. Currently there is a power struggle in Libya. The Transitional National Council has sought to govern Libya; however, 100 militias from western Libya said they had formed a new federation to press the country’s new government for further reform. With no stable government in Libya, the government purchases have decreased greatly adding to the fall of the nation’s GDP.
The last variable that makes up a nation’s GDP is investment, which consists of goods bought for future use. The variable has also decreased in value due to the uncertainty surrounding Libya and the future of the nation. Households are still not positive that it is safe to reside in Libya and businesses are still uncertain if Libya is the best choice for their firm’s future. For example, around three weeks ago the Zambia government announced plans to seize Libya’s stake in the firm Zamtel, a fixed-line telecom firm, in which Libya controlled a 75 percent stake in the company. As uncertainty continues to cloud Libya, there is no telling what will happen to firm’s and household’s investments.
Libya’s GDP took a huge hit due to the decrease in all four variables that make up a nation’s GDP. The main factors that caused these decreases were the civil war and the implementation of an unstable government. While the civil war has ended in Libya, there are still uncertainties when it comes to the new government and how it will successfully function. If Libya’s government can become stable, the future will continue to look much brighter than it does now.
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“Libya minister to protect investment in Zamtel .” Reuters. Last modified January 30, 2012.
Mcshane, Larry. “Libya war death toll: 30K dead, pro-Moammar Khadafy strongholds fire rockets at rebels.” NY Daily News (New York), September 8, 2011. http://articles.nydailynews.com/2011-09-08/news/30151648_1_longtime-libyan-leader- rebel-forces-rocket-blasts.
SyndiGate.info. “The Arab Spring Economic Report.” AlBawaba Business. Last modified October 24, 2011. http://www.albawaba.com/thearab-spring-report-398218.
The Associated Press. “Libya: Western Militias Unite, Posing Challenge to Transitional Government.” The New York Times (New York City), February 13, 2012. http://www.nytimes.com/2012/02/14/world/africa/libya-western-militias-unite-posing- challenge-to-transitional-government.html?_r=1.