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NS3040 Fall 2014 Arab Spring Assessment Dr. Robert E. Looney [email protected] Arab Spring Overview I • Arab spring resulted in increased political pluralism and new democratic institutions but led to: • Instability • Setbacks in the transition towards democracy • Mass protests • Clashes among former revolutionary allies and • The rise of political Islam • Instability taken a toll on the region’s economies • Sharp slowdown in economic activity • Deteriorating external and fiscal accounts • Decreasing reserves • Inflationary pressures in some countries 2 Arab Spring Overview II 3 Ranking -- Legatum Governance (1 highest, 142 lowest) MENA Split I 140 Iraq Yemen 120 100 Syria Egypt Morocco 80 Tunisia Jordan 60 Saudi Arabia Kuwait 40 20 0 0 20 40 60 80 100 120 140 Ranking -- Legatum Social Capital (1 highest, 142 lowest) 4 Ranking -- Legatum Social Capital (1 highest, 142 lowest) MENA Split II 140 Syria Yemen Tunisia 120 Egypt 100 Iraq Jordan 80 60 Kuwait 40 Saudi Arabia Morocco 20 0 0 20 40 60 80 100 120 140 Ranking -- Legatum Entrepreneurship (1 highest, 142 lowest) 5 Arab Spring Impacts I • Long term challenges remain as pressing as ever: • High unemployment (especially among youth) • Inefficient subsidy regimes • Low trade diversification • Main impacts of Arab Spring • Sharp drop in growth, slow recovery underway • Average real growth in region fell from 4.2% in 2010 to 2.2% in 2011 – lowest in a decade • Making matters worse, • global economy sluggish • Eurozone crisis hit region hard given tight economic links 6 Arab Spring Impacts II • Slowdown affected all countries • Hardest hit initially were those countries at center of the Arab Spring • Libya • Tunisia • Egypt • Syria, and • Yemen • Morocco was only country were GDP strengthened in 2011 • Economic recovery subdued in 2012 • Average real GDP growth increased slightly to 2.4% • In 2013 should increase to 3.5% but remain below prerevolutionary growth rates. 7 Arab Spring Impacts III • Production stoppages caused by political upheaval were severe. • In Libya oil production decreased from 1.65 m bpd in 2010 to only 0.47 m bpd in 2011 • In Egypt widespread demonstrations and strickes paralyzed production process and deterred investments for months • In Tunisia labor unrest lead to a substantial decline in mining sector (-40% va) and oil and phosphate production. • In Syria oil production declined by 60% from level at end of 2010 to 0.16 m bpd in September 2012 – sanctions and ongoing civil war • In Yemen economic activity hit by attacks on electricity facilities and pipeline sabotage – led to severe energy 8 shortages. Arab Spring Responses I • Aid-Assistance • To avoid a balance of payments crisis, international community stepped in to support the region • G8 and the international financial organizations founded the “Deauville Partnership” in May 2011 to coordinate aid to afflicted countries • Members pledged up to USD 70 billion • To date only a fraction of promised aid has been disbursed • IMF has also committed to provide loans to Morocco ($6.2bn), Jordan ($2bn), Yemen($93mn) and Egypt ($4.8bn). 9 Arab Spring: Responses II • Governments in region responded to political unrest and weakening of economic performance by increasing public spending • Highest increases in government expenditures relative to GDP – Tunisia and Algeria • Most fiscal measures aimed at sustaining social cohesion and mitigating effects of high food and fuel prices • Popular steps – • Increase subsidies on energy and food • Raise public sector wages and pensions • Expand unemployment benefits 10 Arab Spring: Challenges Ahead I • Youth unemployment, skills mismatch • MENA region faces structural employment gap – especially among younger workers • Regional unemployment rates around 10% • Youth unemployment closer to 30% 11 Arab Spring: Challenges Ahead II • Labor market inefficiencies a key problem in the region • MENA lowest score in the WEF Global Competitiveness Index for labor market efficiency • Region also faces widespread skill mismatches – inefficient education systems produce unprepared market entrants • Firms operating in region regularly list insufficient labor skills as a major constraint • Public sector accounts for an outsized portion of employment in region • 9.8% compared to global average of 5.4% • Taking only non-agricultural employment in 2010, public sector accounted for 70% of labor force in Egypt 12 Arab Spring: Challenges Ahead III • Region generally scores very low on World Bank’ Ease of Doing Business Index – even lower after 2011 – yet the private sector will have to create most of the jobs. 13 Overall Assessment I At this point in time a number of generalizations are possible concerning the Arab Spring phenomenon: • 1. The Arab Spring was caused in part by economic underperformance and exclusion • 2. The uprisings ushered in new hope that • The economies of the region could be transformed • In ways that would provide greater and more widely shared opportunities for their people • Economic Performance • 3. Most transition countries have experienced a deterioration or stagnation in economic performance • 4. The extent and duration of such deterioration has varied by country • Libya recovered more rapidly due to oil revenues • Yemen supported by grants from Saudi Arabia stabilized quickly, 14 but with many problems remaining Overall Assessment II • 5. The economic conditions in transition countries have been and will continue to be affected to different degrees by combination of domestic and external factors • Political uncertainties and tensions – investment, tourism • Weak global growth and Eurozone crisis -- exports • Increases in global commodity prices -- food • Regional spillovers -- refugees • Reform Agenda • 6. A number of reforms needed to stabilize economies and deliver grater economic opportunities • Progress in the critical governance area slow or non-existent • More progress in macroeconomic stabilization but wealth created at micro level and little reforms in areas like labor markets, business environment 15