Egyptian President Abdel Fattah el-Sisi expressed that the Arab Spring resulted in more than 1 million deaths and a corresponding USD 1 million in infrastructure losses. Anbound believe that the Arab Spring has had a destructive impact on the economy, but the empirical data indicates that the economic effects of the Arab Spring are not so straightforward.
The most representative case in point here is Libya, which is currently one of the countries with the highest rate of economic growth in the world. According to the World Bank's reports, Libya has an economic growth rate of 25%, which is more than four times of China's. Unconsolidated reports have even indicated that the country's GDP growth rate is as high as 55%. The Central Bank of Libya reported that in 2017, the country's government revenue amounted to 27 billion Libyan Dinars (1 USD is equivalent to about 1.35 Libyan Dinars), while government financial expenditure 37.8 billion Dinars and fiscal deficit was 10.8 billion Dinars, a figure that is 48% lower than the previous year. As of the end of last year, Libya's public debt was recorded to be 72 billion Dinars.
Indeed, oil income accounts for the biggest portion of Libya's government revenue. According to the Central Bank, Libya's oil revenue amounted to USD 14 billion in 2017, far exceeding oil revenue in 2016 which only amounted to USD 4.8 billion. Furthermore, based on reports from the Central Bank, Libya spent up to USD 15 billion in foreign exchange reserves on imports, and the country's import volume has also been increasing substantially in recent times.
After the overthrown of the regime of Gaddafi in 2011, the political situation in Libya descended into turmoil, in turn throwing the economy into crisis. Currently, Libya has two central banks: there is the western central bank located in Tripoli, which is recognized by the international community and which controls Libya's oil revenue; and there is the Al-Bayda central bank in the east, which is not recognized by the international community and is thus referred to as a "parallel central bank."
And what about the highly-televised and war-torn Iraq?
Well, the figures of economic growth from Iraq are just as astonishing. From 2013 to 2017, Iraq's average annual growth rate reached 10.3%, and this figure has already been rounded down. This was done because international business organizations rounded down Iraq's 2013 and 2014 GDP growth rates to 10.5% and 10.7% respectively, when the original forecasts were 11.2% and 14.5% respectively. These adjustments were made in anticipation of decreased growth in oil exports in the coming quarters.
In West Asian countries and countries north of the Sahara, private consumption and oil prices are intimately linked, and oil exports will continue to be a key driver of economic growth in these regions. With an average annual economic growth rate of 10.3% from 2013 to 2017, Iraq became the fastest growing economy in the West Asian and North African region. In Iraq, alongside the growth of public sector wages and pensions as well as lower rates of inflations, private consumption was expected to grow by 9.5% in 2013 and 10% in 2014. Of course, the relatively low rates of inflation in Iraq also contributed to stimulating consumption. In 2012, Iraq's inflation rate was only 6.2%, and in 2013, it dropped to a mere 4%. This undoubtedly helped to increase consumption. However, unemployment rates in Iraq are still around the 15% mark, and this has in turn held back the overall growth rate of the economy.
Here, it is worth noting that the factors preventing all these countries from achieving higher economic growth are pretty much the same. The slow political process and a lack of transparency within the business environment are but two of the main issues that are holding back the development of non-oil sectors—the economic growth of these countries are currently disproportionately dependent on the oil and infrastructure sectors. In Iraq, the construction industry will continue to benefit from large-scale investment plans and budgeting, but the performance of the industry will still fall short of its potential and expectations because of the central government's regular delays in approving projects and transferring funds.
As for the neighbouring countries that were indirectly affected by the Arab Spring, some managed to stay out of the path of destruction, whereas others managed to take advantage of the circumstances for their own benefit. Algeria and Egypt are illustrative examples here, as the former was not really affected by the Arab Spring, while the latter used the event as an opportunity to "restore order" with the military government taking power. The problem is that while both these countries have maintained their "independence," their economies are no longer as good as before and serious economic risks might emerge in the future.
In 2017, Algeria's economic growth rate was only 1.5%, with an inflation rate of 5.5%. In the second quarter of the year, the year-on-year growth rate of Algeria's GDP was also the lowest it had been in a few years due to a decline in the production of petroleum and natural gas. Other than the drastic decrease in industrial output from the hydrocarbon industry and extractive industries, the recovery of the agricultural and industrial sectors in the country have also been slowing down gradually. Currently, Algeria's inflation rate has been hovering around the 6% mark.
What's more worrying is the fact that Algeria's policy responses to this grave economic situation are not very promising as well. Against the backdrop of plunging oil prices, the government of Algeria has resorted to printing more currency and pursuing austerity measures in order to reduce its fiscal deficit. On the contrary, however, these measures may only increase the severity of the situation. As one of the West Asian countries that managed to "avoid" the Arab Spring, Algeria's authoritarian regime was able to survive thanks to support from its economy and welfare, a policy that has been dubbed "exchanging welfare for peace." However, under the current harsh economic circumstances, it does not seem like this policy can be sustained for much longer. Indeed, in recent years, violent protests have already broken out in Algeria's northern provinces like Béjaïa, Bouïra, and Boumerdès.
Things are not looking very good for Egypt under the rule of the el-Sisi's military government as well. For one, World Bank reports indicate that Egypt's economic growth was 4.2% in 2017, a figure that falls short of Egypt's own estimates at 5.4%. Before the Arab Spring, Egypt maintained an economic growth rate between 5 to 7%, but these numbers dropped to about 2 to 4% when the country came under military rule. In this sense then, the country's GDP growth rate of 4.2% in 2017 is still an acceptable figure.
However, Egypt has two major problems to deal with, the first of which is inflation. Egypt recorded an inflation rate of 34.2% in 2017, while the data consolidated last month suggests that current figures are closer to 26.7%. Nonetheless, based on the optimistic predictions of Egyptian economists, the inflation rate will decrease to 16% as the economic situation in Egypt improves—but the chances of this actually happening remain extremely slim. It also does not seem like Egypt's statistical data is all that reliable, given that the country's inflation rate rose to 31% in April 2017 but subsequently dropped to 30% in the following month. In any case, it is worth noting that in an effort to stabilize the economy after the military government took power, the central bank announced on 3 November 2016 that it would allow the Egyptian Pound to float freely. This in turn caused the Egyptian Pound to depreciate at a rate that far exceeded what had been predicted. Moreover, the introduction of value-added tax at that time also added to the economic burden.
The second major problem Egypt has to deal with is its so-called "state-owned economy," or rather, "national defense economy," where many things are carried out with a lack of transparency. Many military personnel and stakeholders have benefited from this by holding a large portion of contract shares that give them access to many social resources. As a result, the private sector and the market economy do not stand a chance against it. However, el-Sisi's administration still intents on developing this national defense economy to increase its portion of the total economic output to 50%. This lack of transparency in Egypt's social and economic development has caused many people to anticipate the collapse of the Egyptian economy.
Final Analysis and Conclusion:
Overall, it can be said that the economic consequences of the Arab Spring have been rather unusual. The effects of interlinking politics and economy cannot simply be labelled as good or bad, for these are complicated issues. Perhaps what Clinton said might be true after all: economics is economics—politics will not be able to solve economic problems, regardless of whether it is "good politics" or "unpredictable politics."
