Thursday, March 17, 2011

Analysis of Economic loss due to Arabic Uprising

                       fig 1: Arabic stock market (source: Arabianbusiness.com)                                                     
One of the biggest events which 2011 had witnessed so far is the Arab uprising. Fueled with the help of social media, this wide spread revolt, mainly by the youths attempts; uprooting authoritarian and ignorant incumbent regimes, promoting democratization of the over all political system and implementing more development and social welfare. Many of the political pundits are viewing this movement, which started in Tunisia and then spread vigorously across various parts of the Middle East, in line with famous reforms in the East Europe during 70’s. Though the latest Arab uprising will definitely have great positive impact on the Arab world in long term, but had also resulted in huge economic loss in the short term. The market capitalization for 16 Arab stock exchanges, valued at US $ 1002 Billion on January 25, went down to US $ 862 Billion by March 4, there by losing US $ 140 Billion. (Shane McGinley, 2011)

 
Last couple of years was quite de motivating for the Arab economies, on account of factors like  global economic slowdown followed by dip in oil prices and Dubai real estate crisis. But the market seemed to be bullish in the beginning of the year. The over all MENA (Middle East and North Africa) regions were expected to grow at 5.1% of GDP according to IMF and economic conditions seemed to be strong, owing to increase in oil prices. But the recent uprising can end up wiping of 2 percentage growth points.The uprising had following impact on various individual economies:


Tunisia

The uprising started in Tunisia during December, 2010, finally culminating into overthrowing president Ben Ali on January 14, 2011. The Economic loss of the revolt is estimated to be around, US $ 3.48 Billion (Mees.com, 2011). The Tunisian stock market, started in  1969 and enjoying a long period of growth since 2003, crashed , making the index fall by 12 percentage points during a week of turmoil. The stock market closed during the turmoil had finally re opened. Presently valued at US $ 13 Billion, with 56 firms being listed, the market is yet to get back to its original form. Though IMF is predicting long term gain for Tunisia on account of reforms and transparency expected from the new govt., the ferocity of short term losses due to burning up of factories during revolt, tourism hitting a low with a drop of 40% from January to February, canceling or halting of several real estate projects worth US $ 45 Billion etc; can not be discounted. (thenationals.ae, 2011) 

Egypt:

Egypt had been badly hit by the revolt. It had been calculated by a French bank that at the height of revolution Egypt was loosing US $ 300 Million a day (Heather Murdock, 2011). Uprising, which happened during peak tourist season, ended up one Million tourists leaving Egypt, there by hitting hard a very important source of foreign currency. As an after effect of political turmoil; banks are conscious of lending and there had been a significant decline in credit growth; in the light of more govt. spending, the fiscal deficit of the govt. is expected to touch double digit; food supply had been affected in many areas, resulting in high price of food items; the Egyptian stock market was closed for five weeks, resulting in huge losses whose exact value is not known. The annual growth rate, expected to be 6% in the beginning of the year had been revised to 4%. (Dawn.com, 2011)   

Libya:

Libya is another country, where wide spread protest is happening against the oppressive Gaddafi regime.  Situation in Libya is worsening day by day and most of the expatriate population has left the country. The food supply system had collapsed and food prices have sky rocketed. Libya, one of the biggest oil producers in Africa, exported 1.3 million barrel of oil a day, constituting around 2 % of global consumption, but after the crisis, with most of the foreign companies discontinuing their operations in Libya and many major customers imposing sanctions, it had come to a halt. The freezing of oil export will not only affect Libyan economy vehemently, but will also have negative impact on global oil prices. In contrast to Egypt and Tunisia, where the revolution served the purpose of regime change, in Libya the war between Gaddafi’s supporters and opponents are still on and Gaddafi and his supporters seem to be reluctant to give up very easily. This is making the situation worse.     

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Other Economic impact:

Other than economic wreckages felt in individual countries, there can be some wide spread economical impact, being felt across the region. Such as:

  •   Due to tension in the region tourism industry in other parts of  Middle East might make loss
  • Airlines, operating in Middle East might make loss following a drop in tourism in Egypt and   Tunisia. Many of the leading airlines have reduced their operation in this region. (Gospress.com, 2011)
  •   In order to prevent  future possibility of any uprising, many countries in the region are coming up with stimulus packages. For exp: recently Saudi Arabia declared US $ 36 Billion stimulus package.
  • Stock market in various parts of the Arab world is plummeting. There is a wide spread fear that the uprising will spread to various other parts of the region, there by making the investors wary of investing in the Arab world. Market capitalization of Saudi Arabia, the biggest GCC (gulf cooperative council) nation had gone down to US $ 286 Billion in March 2 from US $ 340 Billion in January end, a loss of  US $ 54 Billion. Similarly for other gulf countries like Qatar, Kuwait and Dubai, the loss had been of the magnitude of US $, 14, 16 and 2.7 Billion respectively. (yacout.info, 2011)    
 
The given blog had analyzed the short term loss due to the uprising, nevertheless  in the long run the wide spread movement is expected to create huge economic gains on account of transparency in the over all system, efficient allocation of resources, better power to the common citizen  (besides mass level political and social reform). The next blog will try analyzing the long term economic gains from the uprising. 



Reference:

1>   Shane M, 2011, Analysts say 2011 could be a lost year for Arab bourses, arabianbuisiness.com, available at http://www.arabianbusiness.com/analysts-say-2011-could-be-lost-year-for-arab-bourses-385503.html
2> Mees.com, 2011, Popular uprising rip through Middle East, available at  
3> thenational.ae, 2011, Tunisia crisis, available at
4> Heather M, 2011, Egyptian economy: facing the unknown, voiceofamerica.com, available at
5> Dawn.com, 2011, worries about fallout of unrest on Egyptian economy, available at < http://www.dawn.com/2011/03/10/worries-about-fallout-of-unrest-on-egypts-economy.html>
6> Gospress.com, 2011, Crisis in Arab world can hurt airlines, available at < http://www.gospress.com/economy/crisis-in-the-arab-world-can-hurt-airlines.html >
7> yacout.info, 2011, unrest in Arab world caused Saudi market $ 54 Billion, available at < http://www.yacout.info/Unrest-in-Arab-World-Costs-Saudi-Market--54-Billion_a2641. html

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