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Egypt and the Economic Implications of the Arab Spring

February 20, 2012 by

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.

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

Yemen: the Economy and Social Unrest

February 20, 2012 by

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”

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

The Arab Spring and its Impact on Bahrain’s Economy

February 20, 2012 by

Zikibayeva, in December 2010, stated that Mohamed Bouazazi’s self-immolation in protest of the police corruption in Tunisia sparked numerous demonstrations that spread revolutions across North Africa and Middle East. “The revolutionary spirit that spread to the neighboring countries Egypt, Libya, Syria, Bahrain, Yemen, Morocco, Jordan, raised questions of a possible spillover in other regions of the world.”(Zikibayeva ).

The tension that arose led to various economic unrests which are continuing even today. A major loss to Bahrain’s economy and prestige was the cancellation of the 2011 Formula 1 Grand Prix races which were originally scheduled to take place during March. “Efforts were made to reschedule the event in June and then later in October or November 2011, but were left unsuccessful. The next Formula 1 race has been rescheduled to take place during November 2012.” (www.marcopolis.net). The adverse effects on the economy via the cancellation and rescheduling of the grand prix due to the tensions that arose because of the Arab Spring will be discussed in the subsequent paragraphs.

Formula 1 had contributed to the Bahrain’s economy significantly through the revenues gained through the sale of tickets, TV coverage, basic transportation, food and beverages and numerous other activities.  However, with the continuous cancellations and rescheduling of the Formula 1 events in 2011, Bahrain has had to incur serious losses in the form of huge expenses to the economy.

Since 2004, the Grand Prix has always been held annually in March as the major event in the racing season. However, with the current tensions and cancellations, “Bahrain will be losing its premiere position in the holding the Grand Prix in March and will now have to hold the events close to the end of the season.”(www.marcopolis.net). This means that there will be a loss in terms of the audience as more people would have gone to the races at the start of the season rather than towards the end. At the present time, there will be a 32 month long gap between the last F-1 event which had been held in March 2010 and the present event which was scheduled to take place during November 2012.

According to the online source, macropolis.net, besides Formula 1, other sporting events would also have been cancelled or rescheduled due to the overhanging unrests presently. The Golf European Tourney at the Royal Golf Club which was supposed to take place in Bahrain (during this year) was moved to the Southern Hemisphere at the Fancourt Golf Resort. Thus, we are seeing that most of the highlighted sports for the current year have either been cancelled or relocated because of the rising tensions and revolutions in the Middle East.

Aside from expenses incurred due to the withdrawal of the event, losses to the economy also appeared in the form of lost tourism. With the current state of affairs, tourism has been highly affected in Bahrain. Tourism, which brought in substantial amounts of revenue especially during the F-1 season, was adversely impacted by the revolution. Income generated in the merchandize and souvenirs, food and beverage, and accommodation market took a big hit.

“Esam Fakhro, chairman of the Bahrain Chamber of Commerce and Industry (BCCI), has estimated that the direct economic loss to the economy from the unrest has been over US $2 billion”.(www.marcopolis.net). This loss in the economy was mainly seen in the tourism sector (hospitality and events) and it resulted in the reduction in the consumer spending in the retail sector.  Further “results of the revolutions in the Middle East, Standard and Poors (a US based financial company) lowered the Bahrain’s long term and short term sovereign rating one notch and placed it in the Ratings Watch Negative list.” (www.marcopolis.net). This move adversely affected not only the Bahraini banking structure but also the Bahraini government who would now have to pay and/or charge higher interest rates on debts. This would be affecting Bahrain’s long term status as a regional and global center for banking and finance.

The Arab Spring has severely affected the countries associated with North Africa and the Middle East especially Bahrain. The revolutions and unrests in the country have affected the economy adversely. In Bahrain and Syria, the clash was mainly between the Shi’a and Sunni groups. “In late March, the Russian foreign minister’s spokesperson even declared that the events that were of an internal matter and that the matter must be solved though dialogue alone”.(Zikibayeva )

 

Reference:

  1. http://www.marcopolis.net/economic-effects-of-the-crisis-in-bahrain-direct-economic-loss-to-reach-us-2bn.htm
  2. Zikibayeva, A. “What does the Arab Spring Mean for Russia, Central Asia and the Caucasus.” (2011): n. page. Print. <http://csis.org/files/publication/110912_Zikibayeva_ArabSpring_Web.pdf>.
  3. http://ibnlive.in.com/news/fia-ecclestone-keen-for-bahrain-gp-to-go-ahead/230870-5-24.html
Filed Under: Bahrain, Feature, Student Post Tagged With: ,

Industrial Output and Economic Growth in Tunisia

February 20, 2012 by

One year after the Arab Spring, what is the impact of this event on the macroeconomics of Tunisia?

 – A look at industrial output data as a model for measuring economic growth.

Anders K. Møller, 2/17/2012

 Tunisia was the first country during the Arab Spring to experience huge protests against the incumbent government, under the 23-year long rule of President Zine El Abidine Ben Ali. The revolution began in December 2010 following the self-immolation of Mohamed Bouazizi on December 17th in protest against the corruption of the local administration.  Demonstrations in solidarity with Bouazizi and against the corrupt regime of Ben Ali from years of poverty and political suppression ensued, culminating in the departure of Ben Ali on January 14th. In this blog entry I will seek to establish a model for evaluating the economic effects of the Arab Spring in Tunisia (also known as the Jasmine Revolution of that country), and test it against a general economic indicator.

The National Bureau of Economic Research (NBER) in the United States measures the activity of the economy according to four factors, namely industrial production, employment levels, real income levels, and sales in both wholesale and retail. I will attempt to measure the economic pulse of Tunisia during and after the Jasmine Revolution by looking at industrial production levels within the economy, presuming that violent political upheaval will have a detrimental effect to the economy. I will then seek to confirm my results by comparing to the traditional economic indicator, namely Real GDP.

According to data obtained from the Tunisia National Institute of Statistics, the industrial monthly index (using year 2000 as base 100) shows a growth in annual industrial production from 1352.4 million to 1411.3 million dinars  (TND: Tunisian Dinar) from 2009 to 2010. However, at the height of revolution in January 2011 we see a sudden decrease in monthly output compared to the previous year, from TND 130.4 million to TND 116.1 million. This is strong evidence of a general halt in production among a large swathe of firms within the economy as a result of the violent demonstrations by the populace. Both January and February saw huge demonstrations until Prime Minister Ghannouchi resigned on 2/27/2011, and our presumption is further backed by the fall in February production from a year prior from TND 124.6 million to TND 111.1 million. Come March, we see not only a stabilizing political environment but also a return towards normal production levels. By April, monthly production had exceeded the level of the same month in 2009 indicating that the economy had returned to normal. Although average monthly industrial output for 2010 ended up lower than 2009 (pending statistics for the month of December), the total output was still higher in 2010 at TND 1539.6 million compared to TND 1411.3 million. A table summarizing the data is shown below:

 

January February March April May June July

2009

122.9

116.0

118.9

123.1

123.1

127.8

133.9

2010

130.4

124.6

133.5

132.1

136.8

139.4

145.4

2011

116.1

111.1

127.8

133.0

136.7

138.7

138.9

 

August September October November December

Avg

Total

120.2

118.6

127.0

120.9

127.5

123.3

1352.4

125.8

126.1

137.1

126.6

136.2

132.8

1411.3

121.0

130.2

136.8

121.0

–

128.3

1539.6

As can be seen from our model developed above, there’s a close correlation between political instability and economic output. Our data have shown us a sharp decrease for the months of January and February in 2011, the period with the most violent demonstrations and worst political instability. Although the economy managed to pick up from March and onwards, the year 2011 could still have seen much higher industrial output. To confirm whether the economy as a whole was truly affected as indicated from the drop in production output, we will not take a look at Tunisia’s Real GDP for the Period.In 2010, the Real GDP growth rate in Tunisia was 3.7% according to the World Bank. The last quarter in the year saw a steady growth of 1.6%, but this number plunged in early 2011. In the first quarter from January through March, Tunisia’s GDP growth plummeted to -7.8%. Although the economy is seen to pick up in the next two quarters, the annual Real GDP growth rate is estimated to be only 2.4% for 2011. This is illustrated on the graph below, taken from tradingeconomics.com:Although accurate numbers for 2011 have not been published yet, the Real GDP growth confirms our findings based on industrial output: At the height of the Arab Spring in Tunisia, economic growth as a whole was severely hindered. The strong correlation between Real GDP and Industrial Output therefore confirms out modeling of the economy based on industry production.In spite of the quick recovery in the second quarter of 2011, Real GDP could have grown significantly more if the revolution had not taken place. In spite of this one, one could surmise that the Jasmine Revolution will have a positive effect on the economy in the long-run as the new government raises both political and economic freedom.

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

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:

Tourism and Investment

February 20, 2012 by

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.

 

 

 

Filed Under: Feature, Student Post, Syria 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:
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