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Egypt and the Economic Implications of the Arab Spring

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.

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

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