The Mena economy: Arab Spring, economic winter?- EIU
Growing disarray on the streets and worsening political in-fighting are threatening to condemn post-revolutionary Arab states to a meagre economic harvest says the Economist Intellegence Unit (EIU) in a risk report.
Source : https://www.marocafrik.com/english/The-Mena-econom...
The EIU says that the weak global financial situation and new governments which often lack full legitamacy and experience are pursuing short term solutions which have not been properly thought out and are ineffective.They are interim administrations with no long term mandate.
Businesses have had to operate without a proper legal framework. Fiscal measures to try to tackle immediate problems do not help solve long term unemployment and income inequality and there is a loss of confidence and trust.Donor aid is slow incoming.The EIU therefore asks where Egypt,Tunisia, Libya and Yemen who have successfully removed their former dictators go from here?
The decline in Egypt's fortunes is perhaps the most pronounced.Between 2006 and 2010 inward direct investment into the country averaged some US$10bn a year,with a host of leading global brands leading the way. Since 2011 however,Egypt's economy has declined dramatically and in 2011 the balance of payments moved from a small surplus into a massive deficit of US$18.3bn, as portfolio investment moved from a net investment inflow of US$10.9bn into an outflow of US$10.4bn, and foreign direct investment collapsed.
With tourism declining because of coverage of violent demonstrations real GDP growth year on year reached only 0.3% for the first half of the fiscal year.The Egyptian economy grew by an annual average of 7% 2006-2008 and 5% in 2009 -10 even with the global downturn.
Crisis managment has replaced economic planning in a chaotic situation. Spending on subsidies soared to 42% and public sector wages and benefits rose by 27% plunging the fiscal situation even further into the red. Hard currency resevers declined from US $35 billion to US$15 billion in March this year with political parties engaged in elections seemingly oblivious to the situation and the IMF loan proposal for US3.2 billion remains stalled.
Egypt's economic chaos and populism is matched elsewhere. In Tunisia which had a more stable transition and has at least elected a functioning interim government and a constitutent assembly, the government presented a wildly over optimistic 2012 budget.It was 10.7% bigger than the expansionary version already in place. It pledged to freeze the price of subsidised staple foods, increase investment in the deprived interior regions, and (improbably) build 30,000 social housing units and create 100,000 jobs. All of these measures address vital issues but the means of raising revenue are the EIU says, not realistic based on increased tax collection,sales of confiscated items and privatisation.However donors and investors from the US,EU and the Gulf including Qatar and Saudi Arabia are rallying to support Tunisia, which is not the case in Egypt.The EIU notes the same lack of reality in Yemen.
In Libya record budget spending directed to urgently needed reconstruction and development is at least financed by oil revenues estimated to be US$ 60 billion annually but the EIU notes that as with other governments in the region there is a huge gap between passing a budget and actually implementing it.Gaddafi left a country with virtually no private sectoror proper infrastructure and a bureaucracy whose sole aim was to subordinate the people to its ruler.Thus Libya has a nonfunctional administration and a divided population some of whom are calling for federalism and militias who threaten the very existence of the government they fought to install because of continuing violence.The National Transitional Council(NTC) is divided and barely maintaining control.
Political uncertainty and bureaucratic chaos afflict the post revolutionary governments but this is no great surprise given their interim status and the need to create a new constitution. Governments with mandates and a proper term of office have yet to appear. Interim governments by their very nature are unable to plan long term.Howeverthe EIU notes that whilst the chaotic situation is not surprising those populations who sacrificed so much to remove the dictators are becoming very disillusioned with their interim governments.International donor support is crucial in this period of global crisis and whilst Tunisia has done relatively well with US$1.4bn in foreign aid and debt forgiveness in 2012 alone it contrasts with a more than US$2bn decline in its foreign reserves since the start of 2011 . Yemen's foreign currency reserves are down 50% from 2008 .
It is Egypt with its 88 million population which is the main worry.Its islamic politicians seem oblivious to the economic situationwhether an IMF loan is held up or a Saudi loan for US$ 500 million is delayed because of government vacillation.
Egypt's situation is arguably even worse, with its foreign reserves down by more than half since the revolution. The currency is under pressure, and confidence in fiscal solvency is weakening and a proposed purchase of Egyptian Treasury bills is being held up. Egypt's ability to borrow on international markets could be in danger of being compromised.
Donor help is welcome but it will not be sufficient. Nations have to function and manage their economies. The EIU observes that the previous regimes and their "crony capitalism" did much to discredit this process and the international financial institutions that dealt with them. Governments in the region will have to have the courage to explain to their people what needs to be done in economic terms to stabilise the situation. As governments all over the globe are finding, this is not an easy task. Whether the new islamic governments coming into being in the north african region will be equal to the challenge has yet to be seen.Once stability returns international corporate investors will be ready to invest again and markets such as Egypt has tremendous potential, provided the Muslim Brotherhood wishes to utilise it. Its comments on the IMF loan might suggest otherwise.
Businesses have had to operate without a proper legal framework. Fiscal measures to try to tackle immediate problems do not help solve long term unemployment and income inequality and there is a loss of confidence and trust.Donor aid is slow incoming.The EIU therefore asks where Egypt,Tunisia, Libya and Yemen who have successfully removed their former dictators go from here?
The decline in Egypt's fortunes is perhaps the most pronounced.Between 2006 and 2010 inward direct investment into the country averaged some US$10bn a year,with a host of leading global brands leading the way. Since 2011 however,Egypt's economy has declined dramatically and in 2011 the balance of payments moved from a small surplus into a massive deficit of US$18.3bn, as portfolio investment moved from a net investment inflow of US$10.9bn into an outflow of US$10.4bn, and foreign direct investment collapsed.
With tourism declining because of coverage of violent demonstrations real GDP growth year on year reached only 0.3% for the first half of the fiscal year.The Egyptian economy grew by an annual average of 7% 2006-2008 and 5% in 2009 -10 even with the global downturn.
Crisis managment has replaced economic planning in a chaotic situation. Spending on subsidies soared to 42% and public sector wages and benefits rose by 27% plunging the fiscal situation even further into the red. Hard currency resevers declined from US $35 billion to US$15 billion in March this year with political parties engaged in elections seemingly oblivious to the situation and the IMF loan proposal for US3.2 billion remains stalled.
Egypt's economic chaos and populism is matched elsewhere. In Tunisia which had a more stable transition and has at least elected a functioning interim government and a constitutent assembly, the government presented a wildly over optimistic 2012 budget.It was 10.7% bigger than the expansionary version already in place. It pledged to freeze the price of subsidised staple foods, increase investment in the deprived interior regions, and (improbably) build 30,000 social housing units and create 100,000 jobs. All of these measures address vital issues but the means of raising revenue are the EIU says, not realistic based on increased tax collection,sales of confiscated items and privatisation.However donors and investors from the US,EU and the Gulf including Qatar and Saudi Arabia are rallying to support Tunisia, which is not the case in Egypt.The EIU notes the same lack of reality in Yemen.
In Libya record budget spending directed to urgently needed reconstruction and development is at least financed by oil revenues estimated to be US$ 60 billion annually but the EIU notes that as with other governments in the region there is a huge gap between passing a budget and actually implementing it.Gaddafi left a country with virtually no private sectoror proper infrastructure and a bureaucracy whose sole aim was to subordinate the people to its ruler.Thus Libya has a nonfunctional administration and a divided population some of whom are calling for federalism and militias who threaten the very existence of the government they fought to install because of continuing violence.The National Transitional Council(NTC) is divided and barely maintaining control.
Political uncertainty and bureaucratic chaos afflict the post revolutionary governments but this is no great surprise given their interim status and the need to create a new constitution. Governments with mandates and a proper term of office have yet to appear. Interim governments by their very nature are unable to plan long term.Howeverthe EIU notes that whilst the chaotic situation is not surprising those populations who sacrificed so much to remove the dictators are becoming very disillusioned with their interim governments.International donor support is crucial in this period of global crisis and whilst Tunisia has done relatively well with US$1.4bn in foreign aid and debt forgiveness in 2012 alone it contrasts with a more than US$2bn decline in its foreign reserves since the start of 2011 . Yemen's foreign currency reserves are down 50% from 2008 .
It is Egypt with its 88 million population which is the main worry.Its islamic politicians seem oblivious to the economic situationwhether an IMF loan is held up or a Saudi loan for US$ 500 million is delayed because of government vacillation.
Egypt's situation is arguably even worse, with its foreign reserves down by more than half since the revolution. The currency is under pressure, and confidence in fiscal solvency is weakening and a proposed purchase of Egyptian Treasury bills is being held up. Egypt's ability to borrow on international markets could be in danger of being compromised.
Donor help is welcome but it will not be sufficient. Nations have to function and manage their economies. The EIU observes that the previous regimes and their "crony capitalism" did much to discredit this process and the international financial institutions that dealt with them. Governments in the region will have to have the courage to explain to their people what needs to be done in economic terms to stabilise the situation. As governments all over the globe are finding, this is not an easy task. Whether the new islamic governments coming into being in the north african region will be equal to the challenge has yet to be seen.Once stability returns international corporate investors will be ready to invest again and markets such as Egypt has tremendous potential, provided the Muslim Brotherhood wishes to utilise it. Its comments on the IMF loan might suggest otherwise.
Source : https://www.marocafrik.com/english/The-Mena-econom...