A CDGE, Great Decisions and IT Collaboration

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.

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.