Wooster

A CDGE, Great Decisions and IT Collaboration

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.

 

 

 

.

 

 

 

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: ,

The Economic Impact of the “Arab” Spring on Egypt’s Economy

February 16, 2012 by

“Ever since the revolution, there’s been no work… I have three kids and I can’t even provide for them.” (Kenyon, 2011) Abu Saud Mustafa was interviewed in June of 2011, just following the string of revolutions caused by the “Arab” spring, which then resulted in the over-throwing the Egyptian President Hosni Mubarak. Mustafa an artist who sold papyrus sheets drawings that once sold for $15 dollars now only sell for $2 or $3. (Kenyon, 2011) It became clear to those living in Cairo at the time that the economic outlook was bleek. What once was a thriving tourist destination has now become nothing more then a city in the headlines. Corruption, unemployment and a significant economic downturn factored into this outlook so much that even the government worried about market instability. With the unemployment rate up to 12 per cent and investment dramatically decreasing, the government had every right to worry. (Khalaf, Saleh and Allam, 2011)  The ousting of Mubarak shifted a number of things within the Egyptian economy, but it most dramatically affected the confidence of investors within the economy. Many Egyptian businessmen have moved into Europe and other countries for fear that they might be brought up on corruption charges in despite their innocence. (Khalaf, Saleh and Allam, 2011) Fear with in the public sector caused by the revolutions drive for justice against corruption significantly reduced market production and therefore lead to a shrink in the economy.

Despite the surge of movement of Egyptian investors out of the country, numerous foreign governments have pledged tens of billions of dollars in financial support to the future of the Egyptian economy. Although this pledge of investment in the “long-term development” of Egypt will pan out to be significant in the long run, the short run economy will not see a significant change. (Khalaf, Saleh and Allam, 2011) As economists believe that in the short run prices are ‘sticky’, a pledge of money to the economy, especially a pledge to help the “long-term” development of the country, does not immediately affect the prices within that economy. Although prices are not affected and the short run looks bleak, the long-term development is potentially more important than the short run. The plans for the long run offer a sort of stability and a look at the future of an economy.

The interim government in place has taken a few steps to enhance the economic state of Egypt but despite this there is only so much that a government with little economic experience can do. While raising the public sector wages by 15% was a much-needed action, their decisions with relation to fiscal policy are less then impressive. After proposing a budget to plug a deficit of 10.6 per cent and negotiating loans with various banks, Egypt then turned down the loans and trimmed back the budget all together.  (Khalaf, Saleh and Allam, 2011) This left the Egyptian people wondering about the future of their economy.

The significance of the fall of Mubarak to Egypt comes not just in the change in the corruptive power of the government but also a change in the potential for success that exists in the Egyptian economy. Due to it’s large and diversified domestic market Egypt has the potential to become a “powerhouse” within its region. The ousting of Mubarak allows for further economic production within the economy by opening up the market for new goods and allowing for additional production. As the financial times states, “the country has been held back by bad economic management, excessive bureaucratic control and poor education.” (Khalaf, Saleh and Allam, 2011) With this chance for a new form of control over the economy there comes a chance for an increase in the economic status of Egypt within the Middle East.

 

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

The effects of the “Arab Spring” on Libya’s GDP

February 16, 2012 by

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[1] 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.[2]  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.”[3]  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.[4]  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.[5]  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.[6]  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.

Works Cited

Goncalves, Ricardo. “RICARDO’S BUSINESS: Libya’s economy post-Gaddafi.” World News             Australia. Last modified October 21, 2011.             http://www.sbs.com.au/news/blogarticle/125103/RICARDO-S-BUSINESS-Libya-s-            economy-post-Gaddafi.

“Libya minister to protect investment in Zamtel .” Reuters. Last modified January 30, 2012.

http://www.reuters.com/article/2012/01/30/libya-zambia-telcom-            idUSL5E8CU4SO20120130.

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.

 

[1] http://articles.nydailynews.com/2011-09-08/news/30151648_1_longtime-libyan-leader-rebel-forces-rocket-blasts

[2] http://www.albawaba.com/thearab-spring-report-398218

[3] http://www.sbs.com.au/news/blogarticle/125103/RICARDO-S-BUSINESS-Libya-s-economy-post-Gaddafi

[4] http://www.albawaba.com/thearab-spring-report-398218

[5] http://www.nytimes.com/2012/02/14/world/africa/libya-western-militias-unite-posing-challenge-to-transitional-government.html

[6] http://www.reuters.com/article/2012/01/30/libya-zambia-telcom-idUSL5E8CU4SO20120130

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

The Arab Spring and its Impact on the Libyan Oil Industry

February 16, 2012 by

Arab Spring Uprising and the Effects on the Libyan Oil and Gas Sector

            The series of revolutions, political uprising, and widespread protests that began in January of 2011, know as the Arab Spring, swept through Northern Africa and into the Saudi Arabian peninsula and Middle East dramatically altered the power dynamics in the region. While only three states – Tunisia, Egypt, and Libya – saw a change in leadership, the Arab Spring nonetheless had profound effects.  Unlike Tunisia and Egypt, who experienced relatively peaceful uprisings as they forced the respective Presidents out of office, Libya experienced a bloody civil war between Moammar Gaddafi’s loyalists and army and rebels from across the country.  As Libya’s economy is heavily reliant upon its oil and gas reserves, the nearly six-month civil war disrupted both the production and exportation of oil and gas, damaging the economy as its most important industry continues to struggle following the Arab Spring revolution.

Libya, a member of the Organization of Petroleum Exporting Countries (OPEC), currently possesses the largest oil reserves in the African continent.[1]  Prior to the civil war that began in February of 2011, Libya was exporting nearly 1.8 million barrels of oil each day as well as significant amounts of natural gas.  Like many of the member states of OPEC, Libya’s economy heavily relies on the oil and gas industry.  In total, energy production accounted for 95 percent of total export earnings within the country, 60 percent of total GDP, and 80 percent of government revenue.[2][3]  This is why the violence that tore apart the country in 2011, destroying port cities, drilling stations, and refineries, had such a profound effect on the economy.  The International Monetary Fund estimates that following the end of the civil war, Libya’s economic output was $35 billion dollars, half of its pre-war output.[4]

Following the outbreak of the civil war, oil production fell to almost zero.  The termination of Libyan oil production, which accounted for 2 percent of the total global output, caused prices to rise worldwide.[5]  In order to account for the loss of production from Libya, Saudi Arabia increased their production following the civil war.  The political unrest, not just in Libya but also throughout the region has many energy firms wary of re-starting production in the event of more violence.[6]  However, even with the continuing fear of further conflict in Libya, production is occurring, albeit at a much slower pace and less output.

In late December of 2011, Libya’s primary oil exporting port, Es-Sider, announced it would resume operations in January of 2012.[7]  The port of Es-Sider suffered heavy damages during the civil war and was in need of significant repair in order to return to pre-war export levels.  Officials expect the port to begin loading 10 cargoes of 600,000 barrels each in January.[8]  While it is progress, those numbers are only a fraction of the number of barrels exported from the port, which averaged 447,000 per day prior to the civil war.[9]  As of October 2011, production was at only one-third of the normal levels for the pre-war economy.[10]

With improved methods of exporting oil available, through the re-opening of the Es-Sider port, production should also increase as oil prices have remained high throughout the Arab Spring movement.[11]  Officials within the Nation Oil Company, Libya’s state-owned oil company, said that production is expected to be 1.2 million barrels per day by the end of January 2012, or two-thirds of the pre-war oil production.[12]  Although it is promising that the Libyan oil industry is showing signs of repair quickly, the magnitude of damage done to ports, refineries, and drilling stations will hinder the recovery.  A recent article on cnn.money.com quoted a Wood Mackenzie report that states “we estimate that it will take around 36 for the country to recover its full production capacity.”[13]

In the past year, nearly every aspect about Libya has been altered in one way or the other.  The most visible change is clearly the absence of Moammar Gaddafi, the ruler of Libya for 41 years, from power, although the disruption of the oil sector has had possibly a greater impact on the state as a whole.  As oil production ceased during the civil war, the economy’s dominant industry was non-existent.  The results were catastrophic, as GDP, employment, and exports all suffered.  Still, the industry has made a remarkable turn-around following the end of the civil war, and as of the end of January 2012, is producing at more than two-thirds the pre-war levels.  The Arab Spring uprising has undoubtedly brought massive change to Libya’s economy, though with the prospect of democratization, there is hope that its oil sector will not suffer from negative long-run effects.

 

 

[1] Ricardo Goncalves, “Libya’s Economy Post-Gaddafi,” Ricardo’s Business (blog), October 21, 2011, accessed February 16, 2012, http://www.sbs.com.au/news/blogarticle/125103/RICARDO-S-BUSINESS-Libya-s-economy-post-Gaddafi.

[2] Ibid.

[3] CIA World Factbook, s.v. “Libya,” accessed February 16, 2012, last modified February 16, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/ly.html.

[4] Andrew Torchia and Suleiman Al-Khalidi, “Insight: In Arab Spring, Economic Gain Might Trump Pain,” Reuters, January 17, 2012, United States edition, accessed February 16, 2012, http://www.reuters.com/article/2012/01/17/us-arabspring-economies-idUSTRE80G0CH20120117.

[5] Steve Hargreaves, “Libyan Oil Production Could Take Years to Come Back,” CNN Money, accessed February 16, 2012, last modified August 23, 2011, http://money.cnn.com/2011/08/23/markets/libya-oil-production/index.htm.

[6] Ibid.

[7] Benoit Faucon, “Libya’s Largest Oil Port to Resume Exports,” Wall Street Journal (New York), December 30, 2011, accessed February 16, 2012, http://online.wsj.com/article/SB10001424052970204720204577130310626907468.html.

[8] Ibid.

[9] Ibid.

[10] Goncalves, 2011.

[11] Torchia and Al-Khalidi, 2012.

[12] Faucon, 2011.

[13] Hargreaves, 2012.

Filed Under: Feature, Libya, Student Post Tagged With: ,
« Previous Page