It's time for economic change
“I used to work with the military departments to finish the military permits of the drilling wells, but since there is no more drilling, there is no business and no rewards,” says Mohamed Gobba who currently works as a tour guide. © Barrie Maguire
It's time for economic change
Last updated: April 29, 2013

Post-Arab Spring economies: where is the growth?

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Nearly two years have passed since the self-immolation of Mohamed Bouazizi in Tunisia set off a wave of protests and revolutions throughout the Arab World.

The repercussions of the Arab Spring have been widespread and continue to reverberate across the Middle East and North Africa (MENA) region. Dictatorships have been replaced by representative democracies in Tunisia, Libya, and Egypt, while several other Arab and Middle Eastern states continue to experience popular discontent.

Despite these historic developments, people from the region and international experts alike remain concerned about the lack of economic development in the MENA region. In many respects, economic conditions in Tunisia, Libya, Egypt, and, other countries in the Middle East, are worse today than they were two years ago. Foreign Direct Investment (FDI) levels have fallen, GDP growth is down, and unemployment has increased. The palpable optimism that permeated Cairo, Tripoli, and Tunis in the early days of the Arab Spring has subsided, largely as a result of stagnant economic conditions.

Mohamed Gobba, a public relations department manager at a large petroleum company in Egypt saw his work substantially decline after the Tahrir Square demonstrations in January of last year, which prevented the Ministry of Petroleum from making timely payments to foreign investors overseeing the exploration and drilling of oil and gas reserves.

“I used to work with the military departments to finish the military permits of the drilling wells, but since there is no more drilling, there is no business and no rewards,” says Mohamed Gobba who currently works as a tour guide.

Of course, the timing of the Arab Spring was not exactly fortuitous. The global recession, combined with the instability that revolutions naturally cultivate (in Tunisia, it was estimated that $2 billion was lost from the economy during the first month of the revolution alone), has hampered efforts to foster economic development in Tunisia, Libya, and Egypt. Many Arabs are disappointed with the lack of economic progress in their countries.

Economic development will depend largely on the policies instituted by the newly elected governments. Of the three countries to effectively replace dictatorship with democracy, only Tunisia has had a functioning, representative government for long enough to begin instituting economic reforms. Tunisia held elections for the Constituent Assembly until October 2011, and President Marzouki was elected in December 2011. Egypt is still struggling to delineate the parameters of power between the Supreme Council of Armed Forces (SCAF) and the parliament, and in Libya, the General National Congress has assumed power, but has yet to form an interim government and draft the new Libyan Constitution.

The economic challenges facing these new governments will be substantial. In Egypt, for example, almost a quarter of government spending is on public sector salaries and food, and fuel subsidies comprise a shocking 10 percent of the country’s GDP.

“Egypt has a lot of income sources, Suez canal, tourism, petroleum etcetera. The problem of the economy in Egypt was how to manage these sources and the distribution of the revenue,” said Mohamed Gobba .

Similarly, Libya will also have to institute significant reforms and eliminate costly subsidies.

"(Libya) needs to outsource most state services and reduce blanket subsidies on fuel, food, electricity and replace them with targeted subsidies for those who need them,” said Sami Zaptia, Managing Editor for the Libya Herald and director/shareholder in a number of Libyan companies.

"(Libya) needs to reform the banking sector to free capital for business and it needs to drastically improve the doing business environment in Libya.”

Endemic corruption, long-standing high unemployment rates, limited access to finance, declining imports, underdeveloped agricultural and industrial sectors, weak education and healthcare infrastructure are presenting a host of challenges for the newly instituted governments.

There are, however, signs of hope. In Egypt, the interim government recently proposed a series of promising economic reforms. Although passed largely to secure a much needed $4.8 billion loan from the IMF, these reforms should yield positive results if effectively implemented.

There has also been talk in Egypt of large new labor-intensive projects that would attract foreign investment.

GDP growth and other macroeconomic indicators prior to the Arab Spring revolutions were promising, at least in Tunisia and Egypt, earning the praise of the Bretton Woods Institutions. The World Bank, for example ranked Egypt among the top 10 economic reformers for the fifth consecutive year in 2010.

If political stability can be attained, many are optimistic that the previous growth levels can not only be matched, but exceeded. However, any substantive political transformations made in Cairo, Tunis or Tripoli will be short-lived if they are not accompanied by meaningful economic reforms.

Despite the challenges that lie ahead, many Egyptians, Libyans, and Tunisians remain optimistic, including Mohamed Gobba.

“After 30 years of corruption in the era of Mubarak, I think the coming years will be better than before.”

Jordan Toone
Jordan is a Corporate Associate with White & Case LLP in New York. In 2012, he was a visiting researcher at Yale University.
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