Wooster

A CDGE, Great Decisions and IT Collaboration

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