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Arab Spring in Algeria

February 20, 2012 by

The Arab Spring uprising is one that has impacted many countries in the Middle East and Northern Africa with large Arab populations. The unrest has forced many countries to change the ways in which they do economic planning. It has put pressure on governments to increase economic opportunities. Ways in which governments do this is through providing more jobs or by increasing wages paid to the workers. To really understand the impact of the Arab Spring movement we must first understand what the movement is.

The Arab Spring movement is one that was motivated by issues such as unfair government policies, human rights violations, and economic decline. Specifically in the country of Algeria, the uprising came as a result of a lack of decent housing for its citizens. During these initial protests 59 people were reported as injured by police brutality. Despite these initial protests, Algeria had been able to remain somewhat under the radar during the recent years of Arab Spring protests. This is surprising considering Algeria has a rich history of political protests, which end in violence for both sides. The Algerian’s knowledge of what can happen during these political upheavals is a major reason that the country has stayed out of the spotlight.

The Algerian population was primarily seeking better food prices. In response to these demands the government implemented short-term reforms that lowered the cost of certain foods such as milk, cooking oil, and sugar. The subsidies on these goods were matched by increased wages in the public sector as well as a decrease in imports. Another major factor in the unrest in Algeria is the unemployment, especially of the youth. The youth unemployment is at 45% and will most likely rise as approximately 300,000 youth enter the work force each year.

The economic impact of the Arab Spring uprising in Algeria is seen in the lowering of taxes and increased wages in the public sector. The impact of these government decisions will most likely be seen in the consumption portion of the market and will provide households with increased purchasing power in the market. Firms will receive a benefit from these decisions as well. Firms will be able to sell more goods and therefore profits will rise within this area. As households are assumed to be the entity in charge of firms, the general population will yield both a direct benefit and an indirect benefit from these changes. Unemployment rate may also be impact positively. As firms benefit they may choose to expand and hire more workers. This will decrease the unemployment rate and help the overall economy. Rising costs of oil will also help the overall economy of Algeria, as it is one of its major exports.

Source: Algeria at the Crossroads, Between Continuity and Change
Andrea Dessi

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

Arab Spring Effect on Algeria

February 20, 2012 by

While other northern African countries are struggling because of Arab Spring, Algeria has been holding its own.  This may be because of their revolts in 1988 that led to their “Dark Decade” from 1991-2001.  These 1988 revolts led to a new constitution for Algeria, but their 1991 elections were invalidated by the Algerian army.  This unfortunately led to a civil wear that resulted in over 150,000 casualties.   This time in Algerian history is said to be why Algeria has not been hit as badly as neighboring countries by the Arab Spring.  These past years have left a big enough mark on the Algerian people that they are now thinking twice when it comes to revolting.

Because Algerians are conservative about revolting against their government, their revolts are not as threatening as surrounding countries.  These weaker riots are much easier to control.  Algeria controls these riots by using the wealth they have gotten from their oil industry.  This money is then used for increases in employees’ salaries and food subsidies.  Not only is the Algerian government trying to control the angry Algerians rioting in the street, but they are also  trying to give a boost to their economy.  Consequently, Algeria’s market is then benefitted by this increase in cash flow in the country.  More money in their economy will increase their cash flow.  It is hoped that, this will increase their economy.  This will be a great advantage to Algeria compared to neighboring countries if they can give a lift to their economy because they are already one of the least phased of countries effected by the Arab Spring.

Algeria also gave handouts to young people who are currently unemployed.  These handouts are not only passed out to help maintain their riots, but also they are intended to help these young unemployed citizens manage without a job.  Algeria will able to give such subsidies and handouts for a little while because of their large amount of foreign currency reserves of over $100 billion.  The more money in consumers hands, the more they will be willing to purchase goods.  They do face long-term trouble when it comes to one of their biggest economic markets, gas.

Their gas production has recently hit a quiescent period.  It is reported that it will soon start to decrease, consequently hurting its economy.  The Arab Spring is not helping them out in this manner because of the troubles and riots their neighboring countries are having.  This leads to a decrease in communication with them because these countries are to busy being involved with their domestic problems, and this will lead to a decrease in trading.

While it is unfortunate the Algeria had to experience the “Dark Decade” throughout the 1990’s, they are fortunate that they did go through that because the Arab Spring has shown less effect on them than on other countries.  They can also thank their money reserves.  This money has been used to settle the small amount of rioters that they do have.  The more subtle effect this money has on Algeria is that it can be used to increase spending in Algeria.  Little businesses can benefit from this money given out to potential consumers.  While Algeria’s economy is doing adequate now in the short run, the long run is the main concern for Algeria.  Their natural gas industry is planning on declining.  This is where the Arab Spring will have the most impact on Algeria’s government.  The corruption going on in surrounding countries is hurting their long term economic future, but their short term future is safe with help from their money reserves.

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

The Effect of Arab Spring on Yemen

February 20, 2012 by

The demonstrations and protests materializing in the Arab World are occurring in an attempt to draw attention to the repression felt by citizens of these countries.  Yemen is no exception.  Yemen’s protests, commencing in January 2011, called for the resignation of President Ali Abdullah Saleh after 33 years of authoritarian rule.  Although the resistance is intended to ignite a social revolution, the consequences of these movements have larger implications for Yemen’s economy and the macroeconomy as a whole.

Yemen is one of the poorest countries in the Arab World and is heavily dependent on oil resources for revenue.  According to the Central Intelligence Agency’s World Factbook, “petroleum accounts for roughly 25% of GDP and 70% of government revenue.”  However, Yemen faces diminishing resources, largely responsible for the country’s further decline.  Although the government has taken steps to bolster non-oil sectors of the economy along with foreign investment, they must still battle longterm challenges such as dwindling water resources and a high population growth rate in addition to Arab Spring.

The political turmoil caused by Arab Spring has exacerbated rising unemployment.  The most recent estimate of the unemployment rate reached 35%.  This in turn results in a loss of income and therefore a decline in standards of living.  This is accurately reflected in GDP per capita, estimated at $2,500 in 2011.  The population below the poverty line was also listed at 45.2%.  This is no surprise as political turmoil often demands that attention be focused elsewhere, rather than on the current state of the economy.

Rising unemployment also has the property of a domino effect.  Those people facing unemployment will have less demand for goods and services, thus affecting the employees in the sector that provides those goods and services.  A decrease in demand means that the marginal product of labor decreases.  A chain reaction ensures, causing more workers to be laid off.  In addition, the decrease in wages implies a decreasing money multiplier.  If people do not have money to save and invest, the banks cannot create more money by distributing loans.

Yemen, already a suffering country, is experiencing a loss of national output as well.  If people are spending their time protesting rather than working, resources are being wasted, which also decreases GDP.  The government must also focus on welfare spending despite foreign aid they receive for development projects and humanitarian needs, which increases deficits.  An increase in government spending results in a decline of national savings, raising the interest rate and discouraging investment.  In addition, government spending is heightened even more as the government attempts to stifle more protests and uprisings.  The corrupt government, heightened by Arab Spring, extends into the judicial system as well.  This insinuates that contracts are not enforced and private property rights are not respected.  This limits economic security and freedom, and discourages foreign investment.

Yemen has also experienced surging inflation rates since Arab Spring, ranking as one of the highest rates in the world, now at 20%.  This is a significant increase from the 2010 inflation rate of 11.2%.  This inflation occurs as the government issues large quantities of money to pay for expenditures.  With this, seigniorage occurs, which can be thought of as a tax.  Inflation tax hurts those who hold the money because old money in the hands of the public becomes less valuable.  The difference between the value of money and what it costs to print the money is seigniorage and goes to the issuer of the money.  In countries experiencing hyperinflation, this is often the government’s primary source of revenue.

Further, the Fisher effect explicates a one-to-one relation between the inflation rate and nominal interest rate (the rate the bank pays).  Thus, when inflation is high, nominal interest rates are high as well.  This lowers the demand for real money balances, the quantity of money in terms of the quantity of goods and services it can buy.  In other words, it measures the purchasing power of the stock of money.  If demand decreases, there is a decreased desire among the population to hold assets in the form of cash or bank deposits because of it’s decrease in value.  This is true for Yemen, as it experiences high inflation.

Arab Spring has negatively affected Yemen’s already poor economy.  The adverse effects are intertwined, leading the country farther into poverty.  These multiplier effects not only travel through Yemen’s economy, but through the macroeconomy as a whole.  The World Bank experienced interrupted projects during the political crisis in 2011 is just one example.  Thus, Arab Spring is not only a crisis for the Arab World, but the world in its entirety.

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: ,

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: , , , ,

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: ,

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: ,
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