Dear friends and colleagues,
Please see below an important relevant paper about the situation in the Middle East.
Sorry for duplicates.
Ely Karmon, PhD
Senior Research Scholar
International Institute for Counter-Terrorism (ICT) and
The Institute for Policy and Strategy (IPS) at
The Interdisciplinary Center (IDC(
Herzlyia, Israel
Tel.: 972-9-9527277
Cell.: 972-52-2653306
Fax.: 972-9-9513073, 972-9-7716653
E-mail:
ekarmon@idc.ac.il
Editors: Paul Rivlin and Yitzhak Gal Assistant Editors: Brandon Friedman and Gal Buyanover
Vol. 4, No. 1 January 23, 2014
$800 Billion and Rising: The Costs of the Arab Winter
Paul Rivlin
The
Arab Spring, which turned into the Arab Winter, has had huge costs. One
estimate puts the loss at $800 billion, but the real costs are likely
to be higher and enduring.
The
most dramatic example is the destruction of the Syrian economy. The
conflict in Syria is now in its fourth year, 130,000 people have been
killed, tens of thousands have been wounded
and the humanitarian crisis in the region has deepened. Up to half of
the Syrian population is internally displaced
and two million refugees are straining capacities of neighboring
countries. Some 16 million people in Syria, Egypt, Iraq, Jordan,
Lebanon, and Turkey are expected to require humanitarian assistance in
2014. While this has become the largest humanitarian
disaster that the Middle East has experienced in modern times, it is
not the only one plaguing the region.
In
Iraq, in the first nine months of 2013, 5,740 people were killed and
13,801 were injured, according to the U.N. humanitarian mission there.
Fighting intensified at the end of last
year and so the annual figure has exceeded 8,000. Furthermore,
according to government statistics, an estimated 1.3 million people have
been displaced in Iraq.
In
Yemen, one of the poorest countries in the Middle East, the collapse of
basic services in 2011-2012 and endemic food insecurity have destroyed
the livelihoods of large numbers of people.
These factors together with displacement have combined to create a
major humanitarian emergency. Up to 10.5 million people suffer food
insecurity, over a million children are experiencing malnutrition, about
half the population has no access to adequate water
sources or sanitation facilities while 8.6 million have insufficient
access to healthcare. The conflict has led to a rise in civilian deaths
and injuries, with the number of those wounded increasing by 60 percent
in 2013. Deaths and injuries among women and
children rose by almost 40 percent. In addition there are 240,000
refugees in the country, mostly from Somalia. Some 14.7 million people
are therefore in need of assistance, which is more than half the
population.
Libya,
Lebanon, and Bahrain are also suffering from lower levels of conflict
in which thousands have been killed, wounded, or made homeless. This is
the background to a deteriorating
economic situation that prevails in much of the region.
In
November 2013, the International Monetary Fund (IMF) issued a grave
warning about the economic and socio-economic future of the region.
Widespread uncertainties resulting from political
transitions and intensifying social tensions have prevented economic
recovery; in this atmosphere, limited progress has been made so far in
building consensus for much-needed fiscal and structural reforms. Growth
is expected to remain significantly below the
levels necessary to reduce high unemployment and improve living
standards in the near and medium terms. In 2013, the regional growth
rate fell to an estimated 2.2 percent. Fiscal and balance of payments
deficits have widened in oil importing countries. Domestic,
regional, and geopolitical tensions mean that the oil importers in the
Middle East are increasingly susceptible to the risks of increasing food
and fuel import prices. These conditions make it difficult to focus on
policy reforms, although they are urgently
needed to ensure macroeconomic stability, create jobs, and improve
living standards. There is therefore a danger that oil-importing
countries in the region will be drawn into a vicious cycle of economic
stagnation and continued socioeconomic strife.
The
Hong Kong and Shanghai Banking Corporation (HSBC) has counted the cost
of what has happened and what is expected in 2014. It estimated that
those countries most affected by the Arab
Winter – Egypt, Tunisia, Libya, Syria, Jordan, Lebanon, and Bahrain –
will have lost $800 billion of economic output between 2011 and the end
of 2014, equal to 35 percent of their GDP. During that period their
combined population will have risen by six million
to 136 million. As a result, per capita income will be nearly 68
percent lower than they would have been without the effects of the Arab
Spring/Winter. This is equal to at least $6,000 per person. If Yemen is
added to this list, then a further $10 billion
or more of GDP was lost and an additional 1.75 million people were
added to the population between 2011 and 2014.
According
to HSBC, the outlook continues to be bleak in Egypt, where unemployment
has increased and public finances are in disarray. Financial aid from
GCC countries has helped – the
Gulf monarchies pledged $12 billion after former president Mohammed
Morsi was ousted in July, but aid means that there is a risk that the
breathing space provided might slow the pace of fiscal reforms.
Economic
recovery has not taken hold in Tunisia, although the approval of a new
constitution may indicate a more consensual politics than prevails
elsewhere. Libya is experiencing the
breakdown of law and order and is in bad shape both politically and
economically as it struggles to revive oil production. The economic
effects of Syria’s civil war are spilling over into Lebanon and Jordan.
As
a result of these pressures, the public finances of the oil importing
countries region have deteriorated drastically since 2010. Slower
economic growth and the disruption of tax collection
mechanisms have reduced revenues, while increased debt-servicing costs
and rising spending on subsidies and wages have driven expenditure
upward. As a result, budget deficits in Egypt, Tunisia, Jordan, Lebanon,
and Bahrain have swollen from just over $10 billion
in 2005 to $22 billion in 2009 and an estimated $50 billion in 2013.
In
the oil-rich Gulf Cooperation Council (GCC) countries (apart from
Bahrain), the story is different. In the decade to 2012 oil export
revenues rose more than six-fold from $120 billion
to $780 billion. This huge increase has given those countries – Saudi
Arabia, the UAE, Kuwait, and Qatar – a great deal of room for maneuver.
Their response to the Arab Spring was to increase public spending, which
boosted demand and output. HSBC estimates
that public spending in the GCC reached $500 billion in 2013 and that
there was overall budget surplus of 9 percent of GDP. Higher government
spending has, however, prolonged dependence on the public sector and
slowed down reforms designed to stimulate private-sector
growth. As a result the increase in spending has exacerbating
structural weaknesses: dependence on oil earnings has never been higher
and the role of the state rarely more dominant. Rapid increases in
current spending have created long-term fiscal obligations
that promise only limited returns.
Alongside
these economic developments are worrying demographic trends. In 2010,
the population of the Arab World was 334 million. According to the
U.N.'s medium variant forecast (made
in 2012), in 2020 it will reach 403 million, an increase of 20 percent.
(The U.N.’s “medium-variant” projection assumes a substantial reduction
in the fertility levels of intermediate- and high-fertility countries
in the coming years. For these countries,
it is assumed that the pace of future fertility decline will be similar
to that observed for other countries, mostly in Asia and Latin America,
when they underwent similar declines during the second half of the
twentieth century).
By
2050, the population of the Arab World is forecast to reach 563 million
an increase of 68 percent over forty years, the result of the fastest
demographic growth rate in the world.
In absolute terms, the population will rise by 229 million in 40 years. Perhaps
the most critical economic variable influencing political stability is
the rate of unemployment. This is where demographics and economics
interact.
In
2004, the World Bank issued a report entitled “Unlocking the Employment
Potential in the Middle East and North Africa: Toward a New Social
Contract.” The challenge was summarized as
follows:
Over the next two decades, the Middle East and
North Africa (MENA) region faces an unprecedented challenge. In 2000,
the labor forces of the region totaled some 104 million workers, a
figure expected to reach 146 million by 2010 and
185 million by 2020. Given this expansion, the economies of the region
will need to create some 80 million new jobs in the next two decades.
With unemployment in 2004 at about 15 percent, the more ambitious goal
of absorbing unemployed workers in addition
to new entrants suggests that 100 million jobs will need to be created
by 2020, a doubling of the current level of employment in the first two
decades of the 21st century.
What
has happened since 2004? The International Labor Office has provided
some of the answers. Economies in the region suffer from a
specialization in sectors that generate low employment
growth, such as petroleum refining. They lack structural transformation
towards high-productive industries such as high-tech. Over the past
decade, economic growth was two per cent per year. This was too low to
generate sufficient employment opportunities
for the fast growing population and many workers only found jobs in the
informal sector where productivity and therefore incomes were very low.
As a result, unemployment in the region was the highest in the world.
In contrast to many other regions the worsening
of labor market conditions in recent years was mainly a result of the
political instability; the global economic crisis did not contribute
significantly to labor market developments.
Furthermore,
smaller, oil-exporting countries in the GCC redistribute the wealth
generated from their main export goods (oil, gas, and petrochemicals)
through the generous provision of
public employment to nationals. This further pushes up wages for
natives and limits the capacity of these countries to develop a
sustainable business sector outside a few highly productive sectors such
as oil, gas, and petrochemicals.
Besides
a lack of structural transformation, many countries in the region also
suffer from a challenging business climate characterized by poor and
limited infrastructure, such as costly,
unreliable, and inefficient supplies of electricity and water. This
further dampens and limits investment opportunities and growth. As a
result, the demographic change characterized by a growing young
population has become a burden on the economy rather than
an asset.
Table
1 shows that youth unemployment in North African and Middle Eastern
countries remains the highest in the world. Even more worrying is the
forecast that it will remain very high
or even increase in the period to 2018.
Table 1
Youth Unemployment in the Arab World, 2010-2018
North Africa, percent
|
Middle East, percent
|
World,
percent
|
|
2010
|
23.7
|
26.0
|
12.9
|
2011
|
28.1
|
26.0
|
12.7
|
2012
|
29.2
|
26.0
|
12.9
|
2013
|
29.4
|
27.0
|
13.1
|
2014
|
29.5
|
27.9
|
13.2
|
2018
|
29.5
|
28.6
|
13.1
|
Source: Global Employment Trends 2014, International Labor Office
Youth
unemployment in the Middle East and North Africa is more than twice as
high as the global average. For example, unemployment among young people
has reached approximately 19 percent
in Morocco, more than 22 percent in Algeria and Lebanon, 25 percent in
Egypt, closer to 30 percent in Jordan and Saudi Arabia, approximately 40
percent in the Occupied Palestinian Territories, and over 42 percent in
Tunisia. The youth labor force is expected
to decline over the coming years, but this will provide only a
short-term relief: as of 2020, long-term demographic projections
indicate a return of stronger growth of the youth population than the
total population (known as the demographic dividend) making
it essential that the region develops a labor market that can utilize
the new entrants.
Arab
countries lack the political consensus that is needed to implement
economic reforms, although Tunisia might be moving in the right
direction. Given the demographic trends the socio-economic
pressures are likely to increase and that could further threaten
political stability.
For previous issues of Iqtisadi, go to our website,
http://www.dayan.org/iqtisadi-1.
Credit: Dear Jim,
Credit: Dear Jim,
The article is not mine or the ICT's.
To
republish an article in its entirety or as a derivative work, you must
attribute it to the author and the Moshe Dayan Center at Tel Aviv
University, and
include a reference and hyperlink to the original article on the Moshe
Dayan Center's website, http://www.dayan.com/
Best regards,
Ely
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