NS4053
Winter Term 2014
Economics of the Arab Spring
Outline
•
Part I – Economics of the Arab Spring
• Overview
• Economic Impacts
•
• Challenges Ahead
Part II – The Arab Spring Transition Countries
• Patterns of Governance, Economic Reforms
• Country Case Studies
• Tunisia
• Libya
• Egypt
• Yemen
• Syria
•
• Jordan
Part III Lessons Learned/Overall Assessment
2
Arab Spring Overview
• 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
3
Economic Impact of Arab Spring
4
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
5
Effects of Domestic and External Shocks
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
Political Turmoil/External Pressures Take Toll
8
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
9
shortages.
Arab Spring Impacts IV
• Sharp drop in tourism
• Have recovered but remain well below pre revolution levels
• Given tourism accounts for 20%GDP in Lebanon, 12% in
Jordan and between 5% and 8% in Morocco Tunisia and Egypt,
decline had a significant effect on growth.
10
Arab Spring Impacts V
• Foreign direct investment (FDI) flows down sharply
• Accelerates a trend that started with financial crisis 200809
• Between 2010 and 2011 FDI inflows fell by 46%
11
Arab Spring Impacts VI
• Weakening of currencies
• Strongest depreciation experienced by Tunisian dinar.
12
Arab Spring Impacts VII
• Foreign exchange reserves (FX)
• Stronger depreciation in many cases could only be
averted by substantial interventions of national central
banks – sold FX and bought local currency
• Relative stability in FX came at the expense of reserves
• Fall most dramatic in Egypt
13
Arab Spring Impacts VIII
• 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).
14
Arab Spring Impacts IX
• 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
15
Arab Spring Impacts X
• With flat revenues, the result was rapidly growing fiscal
deficits and associated debt
16
Effects of Arab Spring 2010-2013
17
Official Unemployment Rates
18
External Current Account and Fiscal Balance
19
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%
20
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
21
Arab Spring: Challenges Ahead III
• On average public sector salaries accounted for 35.5% of
government expenses in 2009 for regional governments
• Expanded government has crowded out the private
sector
• Most youth find a public sector job prefereable that in the
private sector
22
Arab Spring: Challenges Ahead IV
• Large public sector has bred a lack of economic dynamism in
region – further setting back employment
• World Bank found (2010) that MENA has some of the lowest
firm entry density rates in the world
• Suggests a lack of entrepreneurship with rate almost four times
lower than of Europe and Central Asia
23
Arab Spring: Challenges Ahead V
• 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.
24
Governance Patterns: Voice and Accountability
Voice and Accountability (percentile)
40
35
30
25
20
15
10
5
0
1996
2000
2003
2005
2007
2009
Data Source: World Bank, Worldwide Governance Indicators, 1996-2011
Country/Grouping
Egypt
Libya
2011
Tunisia
Yemen
Average
Monarchy Average
Syria
Reflects perceptions of the extent to which a country's citizens are able to participate in selecting their
government, as well as freedom of expression, freedom of association, and a free media.
Monarchy average = Saudi Arabia, Morocco, Jordan and Oman
25
Political Stability/Absence of Violence (percentile)
Governance Patterns: Political Stability
80
70
60
50
40
30
20
10
0
1996
2000
2003
2005
2007
2009
Data Source: World Bank, Worldwide Governance Indicators, 1996-2012
Reflects pereceptions of the likelihood that the government will be destabilized
or overthrown by unconstitutional or violent means, including politically-motivated
violence or terrorism.
Country/Grouping
Egypt
Libya
2011
Tunisia
Yemen
Average
Monarchy Average
Syria
Monarchy average = Saudi Arabia, Morocco, Jordan and Oman
26
Government Effectiveness (percentile)
Governance Patterns: Government Effectiveness
80
70
60
50
40
30
20
10
Country/Grouping
Egypt
0
Libya
1996
2000
2003
2005
2007
2009
2011
Tunisia
Yemen
Average
Data Source: World Bank, Worldwide Governance Indicators, 1996-2012
Monarchy Average
SYR
Reflects pereceptions of the quality of public services, the quality of the civil
service and the degree of its independency from political pressures, the quality
of policy formulation and implementation and the credibility of the goverment's
commitment to such policies
Monarchy average = Saudi Arabia, Morocco, Jordan and Oman
27
Governance Patterns: Regulatory Quality
Regulatory Quality (percentile)
60
50
40
30
20
10
0
1996
2000
2003
2005
2007
2009
Data Source: World Bank, Worldwide Governance Indicators, 1996-2012
Country/Grouping
Egypt
Libya
2011
Tunisia
Yemen
Average
Monarchy Average
Syria
Reflects pereceptions of the ability of the government to formulate and
implement sound policies and regulations that permit private sector development.
Monarchy average = Saudi Arabia, Morocco, Jordan and Oman
28
Governance Patterns: Rule of Law
70
Rule of Law (percentile)
60
50
40
30
20
10
Country/Grouping
Egypt
0
Libya
1996
2000
2003
2005
2007
2009
2011
Tunisia
Yemen
Average
Data Source: World Bank, Worldwide Governance Indicators, 1996-2012
Monarchy Average
Syria
Reflects pereceptions of the extent to which agents have confidence in and
abode by the rules of society, and in particular the quality of contract enforcement,
property rights, the police, and the courts, as well as the likelihood of crime and violence.
Monarchy average = Saudi Arabia, Morocco, Jordan and Oman
29
Governance Patterns: Control of Corruption
Control of Corruption (percentile)
80
70
60
50
40
30
20
10
0
1996
2000
2003
2005
2007
2009
Data Source: World Bank, Worldwide Governance Indicators, 1996-2012
Reflects pereceptions of the extent to which public power is exercised for
private gain, including both petty and grand forms of corruption as well as
the capture of the state by elites and private interests
Country/Grouping
Egypt
Libya
2011
Tunisia
Yemen
Average
Monarchy Average
Syria
Monarchy average = Saudi Arabia, Morocco, Jordan and Oman
30
Index of Economic Freedom Overall Score
Overall Index of Economic Freedom
70
65
60
55
50
45
40
35
30
25
20
1995
1997
1999
2001
2003
2005
2007
2009
Data source: Heritage House, Index of Economic Freedom, 2013
2011
Country/Grouping
Egypt
2013
Libya
Tunisia
Yemen
Average
Monarchy Average
Note: Monarchy average = Saudi Arabia, Morocco, Jordan and Oman
Note: Syria not ranked
31
Trade Freedom
90
Trade Freedom Score
80
70
60
50
40
30
20
1995
1997
1999
2001
2003
2005
2007
2009
Data source: Heritage House, Index of Economic Freedom, 2013
2011
Country/Grouping
Egypt
2013
Libya
Tunisia
Yemen
Average
Monarchy Average
Monarchy average = Saudi Arabia, Morocco, Jordan and Oman
32
Social Capital
• There are a number of interesting patterns associated
with the region’s governance.
• An often neglected aspect is social capital which
incorporates
• Social networks and
• The cohesion a society experiences when people trust one
another
• Empirical studies on social capital have found that
societies with lower levels of social capital have
experienced lower rates of economic growth
• Unlike physical capital, social capital may take years to
show significant increases
• For the MENA region, low levels of social capital are
closely associated with low levels of governance and
entrepreneurship
33
Ranking -- Legatum Governance (1 highest, 142 lowest)
Patterns of Governance/Social Capital
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)
34
Ranking -- Legatum Social Capital (1 highest, 142 lowest)
Patterns of Social Capital/Entrepreneurship
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)
35
Country Assessments
• Countries With Regime Change
• Tunisia
• Libya
• Egypt
• Yemen
• Countries in Regime Transition
• Syria
• Monarchies
• Jordan
36
Tunisia I
• The economic crisis following the January 2011
revolution and a variety of external shocks increased the
vulnerability of the Tunisian Economy
• Real GDP contracted by more that 2% in 2011
• Foreign direct investment (FDI) and tourism receipts
declining by more than 30%
• Economic downturn –
• Together with return of Tunisians from Libya brought
unemployment to record levels and
• Weakened an already fragile financial sector.
• In response the authorities implemented an expansionary
monetary and fiscal policy
• Higher wages and subsidies,
• Lower interest rates and bank reserve requirements
• Relaxed regulatory measures
37
Tunisia II
• Policies resulted in
• Wider current account deficit
• Instability in exchange rate
• Loss of 20% reserves in 2011 alone despite important bilateral
and multilateral budget support
• Widespread social and economic disparities and high
youth unemployment remain key challenges
• Tunisia’s pursuit of relatively prudent fiscal and monetary
policies and open trade regime produced the highest per
capita GDP growth among MENA oil importers
• Its macroeconomic management relied on extensive state
intervention and fostered the development of an exportoriented low value added industry – intensive in unskilled
labor
38
Tunisia III
• The country’s economic model also characterized by:
• An inefficient banking sector
• Pervasive price and capital controls
• Directed lending
• Weak governance, and
• Rigid labor markets
• The result was
• High structural unemployment particularly among the youth
where it averaged 30 percent in 2010
• Unfair distribution of economic gains among the population and
• Widespread disparities across regions
• The country’s pursuit of reforms in the middle of a
political transition process faces important risks
39
Tunisia IV
• Comprehensive economic reforms needed in the
immediate future to overcome Tunisia’s structural
rigidities and promote inclusive growth
• Many reforms will generate resistance from vested
interests
• Will require time and effort for building broad political
support
• Reforms may not yield benefits immediately despite high
aspirations of the population
• As a result reform process faces both risk of delayed
implementation and social tensions
• Other sources of risk:
• Escalation of domestic tensions from political uncertainty
• Security concerns
40
Tunisia V
• In past two years the country has experienced
• A slowing economy (although a modest recovery is underway)
• Continued unemployment and periodic labor disturbances
• However opportunities are emerging in select sectors of the
economy as a result of:
• Increased transparency and
• Improving legal frameworks which will attract interest from
foreign and local investors
• Still investors may opt to stay away at least until the elections
looking for increased political stability
• The sale of assets from the Ben Ali family, could provide the
state with some important financial support
• However weak economic conditions in Europe a problem:
• Normally accounts for 80% of Tunisian exports and
• Is an important source of foreign investment and workers’ remittances 41
Tunisia VI
• Main opportunities
• Due to location, good scope for “near shoring” arising as
European companies seek to limit the size of their
inventories
• Tourism sector picking up although revenues have yet to
reach 2010 levels
• Reconstruction in Libia could generate contracts and
employment for Tunisians although these have been
slow to materialize
• Main challenges ahead
• 1. Fiscal Pressures – 2012 fiscal deficit around 7% of GDP
– increased public sector wage bill
• Current account widening into double digits – modest
recovery in tourism and continued weakness in Europe.
• Options – financing from IMF, Islamic bonds, bilateral 42
financing from the Gulf
Tunisia VII
• 2. Unemployment – high and still rising unemployment
main risk to economic and political stability
• Immediate outcome of 2010 revolution – increase in
unemployment to 19% due to downturn in economy
• Declined to 17.6% in 2012 but job creation still a major
challenge
• Government hoping improvements in investor climate
will create jobs – also expanding number of public sector
jobs
• 3. Underdevelopment – big problem in te interior reions
given most of Tunisia’s wealth and jobs are on he coast.
• Government focus in more on regional development with
infrastructure and schools
• Main question – how long can the government maintain
stability without delivering significant economic and
43
employment gains? Unions increasingly impatient.
Tunisia Drop in Creditworthiness
44
Tunisia: High Twin-Deficits
45
Libya I
• Libya is at a crossroads. Decisions taken today will have
profound implications for the future.
• The country could follow
• A roadmap for sustainable inclusive growth or
• Face deepening hydrocarbon dependency
• In the short term sustainable growth would require
• Managing the political transition and addressing security
challenges while
• Maintaining budget discipline and macroeconomic stability
• Severe institutional capacity constraints need to be
addressed, particularly in the areas of economic
management and statistics
46
Libya II
• Over the medium term, structural challenges include
improving:
• The quality of education
• Rebuilding infrastructure
• Putting in place an efficient social safety net and
• Developing domestic financial markets
• Private sector-led growth is a precondition for
sustainable job creation
• Reducing regulatory uncertainty and establishing a wellfunctioning financial sector are essential to foster private
sector development
47
Libya III
• Outlook and Risks
• Hydrocarbon output should reach pre-conflict levels in
2013 while
• Reconstruction and private demand should facilitate an
improvement in the non-hydrocarbon sectors.
• Oil price volatility makes economic performance
vulnerable and complements fiscal management
• Necessary reconstruction and development spending will
eventually push the budget into deficit in the absence of
a curb on current spending
• The hasty legislation prohibiting interest poses risks to
the financial sector
• Until Libya generates private employment and makes
progress in curbing corruption it will not address the key
48
causes of the revolution
Libya IV
• On-Going Issues
• 1. Energy exploration and supply
• After the 2011 conflict oil and gas production resumed and
returned rapidly to pre-revolution levels
• However various militias and groups have been using oil
installations to manipulate negotiations with central authorities
• Causes significant disruptions
• 2. Mobility and migration
• Government is eager to enhance Libyan mobility through visa
facilitation and exchange programs
• However EU– with Italy and Malta in the lead wants to curb
(irregular) migration from Libya
• 3. Trade and investment
• Around 70% of Libya’s oil and gas exports go to Europe and
around 35% of its imports are from Europe
• Some European companies are seeking payment for pre-2011
49
contracts in Libya that they claim not to have been paid for.
Libya V
• 4. Constitutional delays hurting business climate
• The uncertainty surrounding the political process and the
rule of law is impacting negatively on the economy
• A particular concern for foreign investors.
• The inability or unwillingness of the Libyan General
National Congress (GNC) to review old laws and pass
new legislation means investment climate not likely to
improve for a year or two (until after elections)
• GNC has yet to revoke a law inherited from Gadhafi
regime which limits foreign ownership in a Libyan
company to 49%.
• Recent government efforts to induce foreign contractors
to resume work by threatening to void old contracts
without offering security and investment guarantees –
very unattractive to companies.
50
Egypt I
• Deteriorating economic conditions contributed to the
2011 uprising and remain an important element in the
current political upheaval.
• Widespread frustration with the government’s failure to
create jobs, revive growth and address gaping
inequalities
• Led to overthrow of governments in 2011 and July 2013
• The risk of further disappointment remains high.
• Several developments already likely;
• Markets are very likely to remain on edge despite aid
offers from several Gulf countries
• Egypt’s credit rating unlikely to improve so long as
external financing remains dependent on oil rich
neighbors
• A scarcity of foreign exchange is likely to lead to further
51
fuel and electricity shortages
Egypt II
• Toxic combination of economic distress and frustration
with leaders’ inability to address poor living standards
continues to be at heart of protest movements around
world
• Nowhere more evident than Egypt
• While many of opposition’s complaints centered on
Morsi’s perceived undemocratic governing style, the
deteriorating economy has shared some of the spotlight
• Power cuts, fuel shortages, and soaring food prices put
pressure on the population
• Tentative prospects for faster growth that had emerged
earlier in the year now appear endangered
• Morsi government had been predicting growth of 2% -now looks overly ambitious.
52
Egypt III
• Economy struggling:
• Power cuts still affecting production
• Investment plans for both domestic and international players
likely to remain on hold
• Weak consumer confidence and hesitant tourists also factor into
weaker growth outlook
• Economy will have a hard time remaining in above zero
growth.
• At the same time
• Unemployment a major challenge with jobless rate at 13%
• New leaders will be challenged to provide support for the
neediest
• With a budget deficit that has not reached 12% of GDP little
room for improving social safety nets
53
Egypt IV
• External accounts which have been under pressure since
2011 uprising also likely to suffer
• Capital flight likely to continue, draining international
reserves.
• Current account deficit had actually begun to show some
improvement in early 2013
• However some of the improved tourism revenues could
weaken once again if instability persists
• International reserves dropped to 14.9 billion dollars in
June – less than half their pre-uprising level
• Continued downward pressure on reserves from capital
flight may be mitigated by financial assistance from the
Gulf States
• Still Egypt’s continued reliance on one-off solutions is
likely to continue to make markets nervous about the
54
country’s debt servicing capability.
Egypt V
• Many of Egypt’s current financial difficulties can be traced to
subsidies
• The country devotes around 10% of its GDP to subsidies for
food and fuel – both of which it must import.
• The subsidies as constructed are inefficient – do not just help
the poor but also the middle class and businesses
• Country has tried to remove subsidies before. Sadat tried and
the result was riots in which 160 people died.
• Subsidy reforms are also critical for attracting back private
investment –
• Will not happen unless IMF gives country a seal of approval
which they insist require reforms
• There are successful models – Iran substituted directed cash
payments to the poor and let prices rise.
• Egypt can’t afford cash payments, but ration coupons to the
poor to purchase food at the subsidy price would be a good
55
alternative
Egypt VI
• Assessment;
• Selection of Beblawi as interim prime minister signals the
military’s understanding of the urgency of economic
policy making
• Beblawi is a strong component of phasing out subsidies
and more free market policies
• Progress in these areas could accelerate Egypt’s
negotiations with the IMF
• The proposed 4.8 billion dollar loan (and further 10.0
billion dollars in assistance contingent on the deal)
remains on hold
• The IMF will need to judge the government’s ability to
implement and stick to subsidy reform
• With an IMF program in place, the country would have the
credibility and financing to begin reviving growth and job
56
creation.
Egypt: RGE Forecast June 2013
57
RGE Risk Assessment June 2013
58
Yemen I
• In 2011 Yemen experienced a serious political crisis that
resulted in shortages of basic commodities
• With the help of the GCC a national unity government
was formed in December 2011
• Unlike other post-uprising countries, Yemen had no clear
break with the former regime.
• Instead of being overthrown, President Saleh agreed to
step down in a transitional agreement
• Effectively reduced his faction to same level as political
rivals.
• His continued presence and the political elite’s inability
to settle long-standing grievances have created an
atmosphere of uncertainty and crisis
• Still, the IMF along with donor assistance from Saudi
Arabia helped the authorities achieve macroeconomic 59
stabilization
Yemen II
• After contracting by more than 10 percent in 2011, the economy
regained growth in 2012 (2.4%)
• Inflation decelerated sharply, foreign exchange reserves
increase and the exchange rate stabilized.
• However fiscal deficit increased to 6.3% of GDP due to revenue
loss caused by frequent sabotage of oil pipelines.
• Despite progress made in macroeconomic stabilization Yemen
continues to face serious challenges
• The political consensus and security situation remain fragile
• Poverty, malnutrition and unemployment are very high.
• Social and environmental problems, notably water scarcity and food
security will become more pressing in the next three to five years.
• A failure to address these issues adequately and swiftly will shackle the
government’s attempts to build a stable and secure Yemen
• International aid organizations will face increased security problems –
risk of kidnappings in delivering aid to local communities.
60
Yemen III
• Complicating matters, as part of their Saudization process,
200,000 Yemeni workers were forced to leave the Kingdom in
early July 2013
• Under Saleh, development was used as a political favor to be
distributed to his allies and withheld from his foes
• Created a policy of permanent crisis
• Opened up space for alternative sources of authority to build up their
own support networks
• Government failure to provide adequate services has also
exacerbated numerous problems
• 1. Refugees
•
•
•
Rise of rebel groups has created hundreds of displaced persons (IDPs)
with many moving toward Sana’a and others toward Aden
Both cities are incapable of withstanding the stress
Many IDPs housed in Aden schools preventing classes from being held
61
Yemen IV
• 2. Power Outages
• Capital’s residence continually frustrated by repeated
electricity outages
• Often stemming from attacks on power lines by tribesmen
• Government appears powerless to bring the tribes under control
• 3. Water scarcity
• Yemen’s water situation, critical for years is growing
more serious
• Depletion has been gradual and people have been able to adapt
to now.
• Will be increasingly difficult in medium term
• Already private companies and charitable organizing are
providing water more frequently than the central government.
• Water and land-related disputes result in about 4,000 deaths a
year
62
Yemen V
• 4. Food Security
• Food security along with rising prices major problem across
the country
• Cost of basic foodstuffs such as flour and sugar rapidly pushing
many Yemenis below poverty line
• Malnutrition is further complicated by lack of adequate
healthcare in most parts of country
• 5. Fragile Economy
• Underlying many of these problems is Yemen’s fragile
economy
• Economy has struggled to recover from protests that forced
Saleh to step down in 2012
• Protests artificially inflated expectations to point that many in
Yemen expected Saleh’s removal with a renewed economy
• Disappointing of those hopes over past year has resulted in a
growing disillusionment with the current government
63
Yemen VI
• Assessment
• Clearly the government will not be able to govern the
country if it is unable to deal with these challenges.
• Likely to grow more acute the longer they are left untreated
• Already drift has set in as different regions of the country slip
beyond government control
• Even as the government attempts to reclaim territory its
legitimacy is being undermined by its inability to provide
and act as a sole source of authority.
• Concerned with establishing itself politically government
unlikely to adequately respond to challenges prior to
parliamentary and presidential elections scheduled for
February 2014
64
Yemen VII
• To help overcome the country’s economic problems donors
have pledged about $8 billion over the 2012-2014 period,
including a $1 billion Saudi deposit at the Central Bank of
Yemen
• Main downside risks include
• Deterioration in the political and security situation
• Heightened social unrest, and
• An unraveling in the country’s macroeconomic stance
• While the upside risks -• Further progress made in terms of a national dialogue
• An acceleration of donor disbursements including budget support to
assist economic policies and reforms
• Possible that an improvement in the oil and gas sectors could eventually
boost production above projected rates
65
Syria I
Destruction of the Economy
• UN Estimates that 23,000 people have been killed
• Economic losses estimated at $84.4 billion
• Economy contracted by 31.4% in 2012; Unemployment more
than 37.5%
• Syrian economy traditionally been based on oil and agriculture
• Both sectors seriously crippled and in disarray
• The Syrian economy has been reliant for years on the state for
coordination and economic management
• All produce, both oil and agriculture is sold by individuals or
companies to the state.
• The State then exports or redistributes it amongst the Syrian
people
• With the on-going war, the Syrian government no longer
fulfilling its distributional role
• The distribution system has completely broken down
66
Syria II
• Uncertainty rife and the population no longer trust the
state to supply sufficient food
• Hoarding of food is increasing
• Caused food shortages
• Significant inflation – Alepppo hyper inflation of 327%
• Wide-spread starvation and deprivation amongst non-food
producing element of the population
• Oil industry also drastically affected by war
• Western countries imposed sanctions on oil exports
• Traditionally oil and gas revenues account for 20% of
GDP and 25% of government revenues
• Sanctions have dramatically reduced both
• Estimates are the sanctions have cost the government $4
billion in low revenue
67
Syria III
• Has led to a severe foreign currency crisis and suspension of
debt servicing
• The macroeconomic environment has essentially broken down
• Sanctions also impacted economy by reducing imports
• Syria net importer of gas and energy
• Energy shortage worsened by destruction of infrastructure
• Electricity and heating blackouts common
• Taking a heavy toll on economic activity
• While massive destruction of physical capital has occurred,
greater loss may be in human capital
• In addition to massive deaths, 311,000 have left the country –
UN estimates this could increase to 710,000 by the end of 2013
• All this leaves Syria’s long-term economic future very bleak
even if Assad is removed in the near future.
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Syria IV
As for the future:
• More than half of the population will be dependent on aid
by the end of 2013
• Increased government management of the war economy
will have an adverse impact on the private sector
• The regime will be forced to introduce more unpopular
economic policies to reduce its increasing expenditure
• The Syrian pound will keep declining rapidly
• Financial support from Iran and other allies will provide
life support to the economy in government controlled
areas
• Growing economic dependence on allies will
• Improve economy’s ability to withstand further major shocks
• Become a necessity for the regime’s survival
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Syria V
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Jordan I
• In contrast to the other countries discussed above, Jordan has
not had a regime change
• In part, the country’s stability has been linked to the economy’s
good performance
• Jordan experienced a period of robust growth during 2000-09
(averaging about 6.5% per annum)
• The economy is among the most open in the Middle East
• Tourism receipts, remittances, FDI flows and external grants
play an important role
• Still there are problems
• While the authorities have implemented structural reforms to
develop the private sector, unemployment remains persistently
high (13.7% over 2000-2012)
• Unemployment is concentrated among the youth – ages 15-24
• This group accounts for about half the unemployed and their rate
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of unemployment reached 29 percent in 2012
Jordan II
• As elsewhere in the region discontent about the economy
has contributed to protests in Jordan since the start of
Arab Spring uprising
• In 2011, King Abdullah responded by offering handouts
and promising political reform
• Since then several changes in prime minister but
political reforms have made little progress.
• The economy does have a number of vulnerabilities
which create considerable uncertainty and tension.
• Remittances 600,000 Jordanian working abroad bring in about
3.3 billion dollars a year (13% of GDP). -- Dependent largely on
external conditions
• Aid Jordan depends heavily on budget support from Saudi
Arabia and the Gulf. Starting in a billion dollars a year for five
years. U.S. aid about $660 million annually
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Jordan III
• Discontent amplified by anger about widening inequlity
and perception privitaziations have enriched a few at
expense of the many
• Increasing doubt aboutgovernment’s sincerity over
reform as it holds back from addressing core issues:
• Corruption. Although the country compares favorably with most
regional countries, public discontent has increased
• Unemployment. Official data putit at 12.9% but the true level
may be twice as high.
• Public discontent about unemployment grown especially in rural
areas where levels are higher and public sector salaries have
stagnated relative to rising prices.
• Dominance and success of Jordanian Palestinians in some parts
of private sectors resented by some other Jordanians
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Jordan IV
•
Assessment
• Public discontent about the economy may feed into discontent
about politics
• The government will try to keep public attention on political reforms
but it may also promise new increases in public sector salaries or
spending if protests escalate.
• However these are only sustainable with Gulf aid
•
• May not suffice to head off protests in the absence of credible
reforms.
Main problems
• Country lacks the domestic revenue to sustain its institutions and
has become entirely economically dependent on foreign aid.
• Without any method of self sustaining growth, Jordan often forced to
make unpopular decisions (subsidy reform) imposed by creditors
(IMF).
• Bouts of protests and uprisings show how vulnerable the state has 74
become
Jordan III
• Other Vulnerabilities
• Energy Jordan imports almost all of its oil and gas needs. Gas
imports from Egypt have been disrupted by attacks on the Siani
pipeline
• Forces Jordan to import more oil, country had to raise electricity
prices
• Syria Although Jordan has not imposed sanctions on Syria
conflict causing problems by increasing cost of goods normally
transited through Syria from Turkey
• Country has been flooded with Syrian refugees
• Discontent
• Public discontent about economy and limited degree of
democracy has caused protests from time to time along
with demands for reform
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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,
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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
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Overall Assessment III
• 7. Progress on economic reforms needed to stabilize transition
economies has been limited in view of challenging political
conditions
• Political rather than economic reforms have tended to dominate
• Lack of focus on the urgency of economic challenges faced – Egypt
• Where to go from here
• 8. Influencing reform agenda remains main lever available to
U.S. and international community. Priority areas:
• Support and encourage IMF Stabilization Reforms
• Strengthen investment climate (Doing Business)and inclusive
private sector development
• Focus on social protection as component of any reform
• Encourage subsidy reforms
• Governance reforms critical – anti-corruption, increased
transparency critical to stronger economy
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End
• THANK YOU --
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