x Abu Dhabi, UAESaturday 22 July 2017

An economic awakening to match a season of change

The so-called Arab Spring is bringing economic uncertainty and decline. The grim truth of revolutions is that they do not yield short-term economic benefits. At first they usually make things worse.

F or many Arabs across the Middle East and North Africa, the so-called "Arab Spring" will bring a cold bout of economic uncertainty and decline. This is the grim truth of revolutions: they do not yield economic benefit in the short-run.

Rather, they usually make things worse.

Signs abound that a spring of uprisings could usher in economic discontent. Al Hayat reports that some $30 billion (Dh110.1billion) in capital fled the region in the first quarter of 2011. Unemployment has ticked up in both Egypt and Tunisia. Yemen's economy is teetering on the brink of disaster and Syria's own president, Bashar Al Assad, warned of "the collapse of the Syrian economy" in a speech in June.

Indeed, the Institute of International Finance estimates that the economies of Egypt, Tunisia, Syria and Yemen will contract in 2011.

In the most severely affected countries, currencies are under pressure, stock prices have dropped sharply and joblessness grows. Meanwhile, cross-border effects - such as the loss of Libya's market for Tunisian exporters, the 300,000 Egyptians forced to return home from Libya jobless and disoriented, or the effects on Lebanon's tourism industry owing to heightened perceptions of risk among European travellers - are harder to measure.

The forecast for Egypt is particularly troubling given its need to maintain 6 per cent growth just to keep its unemployment rate constant. Tourism, its top foreign exchange earner, is down more than 35 per cent this year. In 2010 tourism accounted for 11.5 per cent of Egypt's GDP and some $13 billion in revenues. The industry employs one in seven Egyptians. A sustained drop in tourism numbers would represent a debilitating drain on Egypt's economy.

Egypt's tourist minister, Mounir Fakhry Abdel Nour, told Foreign Direct Investor magazine that the country has lost more than $2 billion and described the current state of affairs as a crisis even worse than the sharp decline following the 1997 Luxor tourist massacres. While some canny tour operators have taken to offering Tahrir Square "revolution tours", the reality is that most mass tourists prefer traipsing about it in museums, ruins and bazaars than in active conflict zones.

Substantive aid packages from Saudi Arabia and the United Arab Emirates amounting to some $7 billion will certainly shore up Egypt's finances. It also gave them the confidence (perhaps misguided) to turn down IMF assistance. But it has become clear that Egyptians need to reap some economic benefits soon from their revolution.

Even Wael Ghonim, the face of Egypt's Facebook generation, tweeted recently: "Economy must get to our priority list. A real counter revolution could occur if people get insecure and unable to fulfil their basic needs."

Tunisia, for its part, seems to have fared better than Egypt. While expected spikes in joblessness threaten new instability, the post Zine El Abidine Ben Ali regime transition process seems to be moving more smoothly than in Cairo. For one, the streets are less prone to bouts of violence.

This is a critical point because investors - both domestic and foreign - are entering uncharted territory in both Tunisia and Egypt, with all the attendant challenges and risks this implies.

While neither system was efficient or just before the revolutions, the private sector businessman or foreign investor knew the pathways. They knew which minister to cajole or entice, which one to bribe and which family member of the president to court. Those pathways of doing business have now been closed, and the new ones are still being formed.

As for the ongoing crisis countries - Syria, Yemen, Libya and to a lesser extent Bahrain - it is manifestly evident that their economies will continue to suffer as long as their ongoing conflicts go unresolved.

This means that Yemen, already a troubled economy before its near civil war, will now be on the brink of collapse. It means that Syria will dip into its dwindling foreign reserves and increasingly look to its ally Iran - a country with its own economic problems - for support. And it means that Libya will remain in a state of flux until Colonel Muammar Qaddafi falls (and likely for longer).

As for the GCC countries besides Bahrain, they seem to have shrugged off the "Arab Spring" and even potentially reaped a dividend. After all, the pattern of capital flight is no longer a one-way trip to a Swiss bank account; now, North African and other Middle East capital fleeing conflict is finding its way to Dubai, Abu Dhabi, Riyadh and Doha. Sovereign credit ratings have remained stable, several bond issuances went off successfully, and analysts have widely predicted that stock markets are headed for a bump after the summer lull.

It is important to remember that, despite the media moniker "Arab Spring", Yemen is not Oman and Syria is not Saudi Arabia and so on. Wide differences exist in socioeconomic structures and political and economic risk.

Meanwhile, those countries hit by economic crisis must tread a fine line between providing a temporary cushion for their populations and avoiding the perils of populist economic policies.

When a young vegetable vendor set himself on fire in Tunisia last December, it proved to be the unlikely spark that set off a chain of fires across the Middle East and North Africa. It is important to remember why Mohamed Bouazizi took this fatal step. He simply wanted an opportunity to make a living, to support his family and to live in dignity.

For the "Arab Spring" to be a success, then, it must find ways to support the simple economic dreams of the Mohamed Bouazizis all across the Arab world.

 

Afshin Molavi is a senior fellow and co-director of the World Economic Roundtable at the New America Foundation, a non-partisan think tank in Washington DC