1. Arab Spring Assessment Dr. Robert E. Looney relooney@nps.edu NS3040 Fall 2014

2. 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

3. Arab Spring Overview II 3

4. MENA Split I 4

5. MENA Split II 5

6. 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

7. 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 pre- revolutionary growth rates. 7

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 shortages. 8

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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, but with many problems remaining 14

15. 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