Economic Consequences of Recent Economic Developments
In the Southern Mediterranean Region
Ø Thanks to UNECE and PAM for the organisation of the event; critical juncture in history of Mediterranean; concerns about spill-over effects across the region; economic, political and social costs.
Ø Although all countries of North Africa are touched, I will focus attention on Tunisia and Egypt; although Libya, Algeria and Morocco are affected too by what has become known as the “Arab Spring”.
Ø I will focus only on the economic causes and effects; the political debate is another subject that may require a different debate at an alternate venue.
Ø Main economic causes of the revolutions:
- Flagrant corruption & cronyism among the political elite, including the allocation of state lands for private development, concessionary loans for the ruling elite, and sweetheart deals on privatised state assets for regime figures.
- Rising prices of basic necessities, particularly foodstuffs; adding to the substantial burden on the poor – particularly in the cities; the vast majority of whom living on $ 2/day or less. Estimates go up to 40% rise in last 12 months.
- Declining per capita state subsidies on foodstuffs, fuel and services – despite the rising overall bill – at a time of rising inflation (around 13% in 2010).
- Large, and growing, unemployment, particularly among the educated digitally-savvy youth (over 20%) - leading to serious, and growing, social and labour unrest.
- Economic disempowerment of the vast majority of the population and a growing gap between the rich and poor; despite very respectable 5-7 % growth rates over the last ten years.
- Large regional disparities within - and across - the countries, particularly in consumption, public services and poverty (east & west Tunisia, north & south Egypt).
- Fast pace of economic reform, not accompanied by parallel political reform. Of particular was the fast pace of privatisation with no accompaniment of strict governance structures.
Ø Possible economic effects of the revolutions:
- Retrenchment of the much-maligned neo-liberal economic reforms (particularly state-asset privatisation, customs reform, foreign-currency exchange liberalisation), and the adoption of economic populism in the face of mounting pressure for immediate relief through state subsidies & other welfare measures.
- Continued labour strikes, frozen financial markets, continued capital flight and rising food prices will impact GDP, manufacturing and exports growth rates, while drawing down currency and food reserves - and raising budget deficits - to dangerous levels. Possible defaults on foreign debt, tighter credit ratings on same, growing BOP difficulties and a downwardly-mobile exchange rate.
- Potential medium-term negative effects on one of the most economically-important sectors; namely tourism; concomitant effects on incomes and employment.
- Retrenchment of FDI in the face on continued financial upheaval, unclear future of economic reforms and unsettled stock markets.
- Possible expansion of government employment (under-employment) to soak-up growing unemployment, reversing a trend towards the shrinking of government.
What scenario for the future? Length of “cool-down” period, external support (financial & trade) <WB/AfDB - Tunis, US/EU – Egypt, global economic recovery, other regional (near-East & European) developments
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