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Babylon & Beyond

Observations from Iraq, Iran,
Israel, the Arab world and beyond

Category: Carnegie Endowment

SYRIA: The economic consequences of social unrest [Video]

Editor’s note: This post is from analyst Lahcen Achy, below left, with the Carnegie Middle East Center. Neither the Los Angeles Times nor Babylon & Beyond endorses the positions of Carnegie analysts, nor does Carnegie endorse the positions of The Times or its blog.

Achy_color_medium Popular protests in Syria over the last five months have caused a notable decline in the country’s economic indicators. Gross domestic product is expected to contract by 5% for the current year, after International Monetary Fund estimates had originally predicted 3% growth before the protests erupted.

The budget deficit has increased due to expanded social expenditure and shrinking tax revenues. The economic and security situation is expected to deteriorate further as the unrest continues to grow. The international community may resort to additional sanctions affecting the private companies and government institutions that form the backbone of the Syrian economy. This could throw the country into an unprecedented economic and fiscal crisis.

Carnegie logo Tourism, which accounts for about 12% of Syria’s GDP and directly contributes more than 10% of total employment, is one of the economic sectors most damaged since the protests began. Over the last three years, Syria has spent huge sums to increase its ability to receive Arab and foreign tourists and improve the quality of services provided to them. Tourist numbers rose from 6 million visitors in 2008 to 8.5 million in 2010, an increase of more than 40%. This activity supplied Syria with about $8 billion of hard currency over the same period.

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SYRIA: Crisis may hurt economies of Turkey, Lebanon, Jordan, Iraq

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Editor’s note: This post is from analyst Ibrahim Saif, below left, with the Carnegie Middle East Center. Neither the Los Angeles Times nor Babylon & Beyond endorses the positions of the analysts, nor does Carnegie endorse the positions of The Times or its blog.

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Current events in Syria are expected to impact other states economically, especially neighboring Turkey, Lebanon, Iraq, and Jordan. The first potential effect is on bilateral trade between Syria and its neighbors. Turkey comes to the fore here, since its trade to and from Syria was valued at $2.27 billion last year.

The situation in Syria affects Turkey in two ways. The first is the potentially large drop in trade volume, especially since demand for imports and Turkish commodities –- which used to be high –- has dropped sharply since the beginning of the events. Some sources estimate that trade volume has dropped between 30% and 40%, and that these percentages could drop even lower with the expiration of prior arrangements and the continued state of chaos.

Carnegie logoMeanwhile there is an absence of desire on both sides, Syrian and Turkish, to renew these contracts before matters become clearer. During 2010, Syrian exports to Turkey were valued at $1.6 billion, while Syrian imports from Turkey were around $630 million.

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ALGERIA: Postponing economic therapy is playing with fire

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Editor’s note: This post is from analyst Lahcen Achy, below left, with the Carnegie Middle East Center. Neither the Los Angeles Times nor Babylon & Beyond endorses the positions of the analysts, nor does Carnegie endorse the positions of The Times or its blog.

Achy_color_medium In recent weeks, Algeria’s government has taken a series of steps to improve the economy and reduce public anger over its poor political and economic performance. The government amended the 2011 budget law, approving a 25% increase in public spending.

The country also launched a new round of negotiations with the European Union aimed at postponing Algeria’s obligation to lift customs barriers on European imports. Policymakers also took various measures to improve the country’s business environment and stimulate private investment.

Although these moves may suppress the potential risk of short-term popular unrest, they fail to address the structural flaws in Algeria’s economy. Its excessive dependence on global oil and gas prices, along with the absence of any credible strategy for economic diversification, present clear mid- to long-term challenges.

Carnegie logoThis failure to use available resources today to develop competitive economic activities outside the fuel sector is exposing Algeria to serious dangers in the future. If the price of oil suddenly drops below $100 — which is plausible — it will be impossible to maintain the current pace of government spending without tapping the country’s sovereign wealth fund, known as the Revenue Regulation Fund, and then resorting to foreign loans.

On the other hand, sharply reducing government spending to limit the budget deficit could fuel popular anger and throw the country into a cycle of social unrest. Even if fuel prices stay high, however, Algeria’s oil and gas reserves could be depleted within 20 years. Algeria’s leaders must therefore start now to seriously plan for a post-fuel economy. 

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IRAQ: Nouri Maliki attempts to bolster his power by looking to the provinces

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Editor’s note: This post is from an analyst with the Carnegie Middle East Center. Neither the Los Angeles Times nor Babylon & Beyond endorses the positions of the analysts, nor does Carnegie endorse the positions of The Times or its blog.

As a stalemate between the State of Law and Iraqiya coalitions continues to paralyze Iraq’s central government, Prime Minister Nouri Maliki is looking to the governorates to tilt the political balance in his favor.

Fantappe_color-medium1 (2) In the country’s south, Maliki is attempting to defend his base from the growing popularity of the Sadrist Trend. Meanwhile, in Iraqiya’s northern strongholds of Anbar, Ninewa, Salaheddine, and Diyala, the prime minister is mounting an ambitious campaign to consolidate his hold over Iraq. By attempting to break the link between provincial leaders and the Iraqiya coalition — his main parliamentary rival — Maliki is seeking to bind the governorates to Baghdad.

Already, public demonstrations and a deteriorating security situation in these governorates have challenged the credibility of local political leaders, who came to power following the 2009 provincial election. Governors, deputy governors and heads of provincial councils in all four northern governorates have been repeatedly confronted by protesters calling for service improvements. Recent attacks targeting provincial offices in Salaheddine and Diyala have called into question the competence of police and local security officials.

Carnegie logoThe Maliki-run central government now has an opening to play a greater role in provincial affairs.

In Ninewa, central government emissaries have ridden the wave of popular discontent to call for the resignation of local authorities. The army-run Ninewa Operations Command (NOC) has openly supported protests against the incumbent governor, Atheel Nujaifi.

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EGYPT: Foreign debt constrains economic choices

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The first six months of this year have not been easy for the Egyptian economy. The political unrest that ousted the president and uncertainty over the country’s direction triggered a drop in tourism revenues, low levels of domestic and foreign investments and scarce employment opportunities in the formal private sector.

Carnegie logo Economic growth is expected to drop from an early forecast of 5.5% to a maximum of 2% for the 2010-11 fiscal year, the country’s lowest growth rate during the past decade.


Meanwhile, government expenditures are steadily rising, following a 15% hike in civil servants’ wages and a budget increase in food subsidies to soften the burden of high prices in global markets. The government’s budget deficit for the 2010-11 fiscal year could exceed 10% of GDP, up from 7.6% projected before the unrest began.

Timeline: Revolution in Egypt

Lkd5nonc As a result, the Egyptian government is struggling to fund a gap of around $20 billion and to budget confidently for the coming fiscal year, which begins next month. There are ongoing negotiations with international institutions — primarily the International Monetary Fund (IMF) and the World Bank — as well as talks with Egypt’s traditional partners: the United States, the European Union and the Persian Gulf states.

In his recent speech on the Middle East, President Obama announced several measures to support the Egyptian economy, including the conversion of $1 billion of Egyptian debt into investments, and loan guarantees up to $1 billion to assist Egypt in entering global financial markets. Egyptian debt to the United States now amounts to $3 billion of a total of $32 billion in foreign debt. Saudi Arabia has also announced a program of loans, grants and support for investment programs in Egypt with a total value of $4 billion.

Other negotiations are underway with the IMF to obtain loans that could be worth an additional $4 billion. The G-8 has also announced a forthcoming support package of loans and investment partnership projects, which could pump nearly $10 billion directly into Egypt’s economy within one year.

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MIDDLE EAST: 'Arab Spring' has yet to alter region's strategic balance

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Editor’s note: This post is by Paul Salem, director of the Carnegie Middle East Center. Neither the Los Angeles Times nor Babylon & Beyond endorses the positions of Carnegie's analysts, nor does Carnegie endorse the positions of The Times or its blog.

Salem_color_medium3 (1) Despite their sweeping repercussions for both domestic and international players, the Arab uprisings have not led to a dramatically new regional order or a new balance of power. This could change, particularly if developments in Syria continue to escalate.

While Iran has welcomed uprisings against Western-backed regimes in Egypt and Tunisia, it dealt harshly with its own protesters and has been worried about recent events in Syria. Moreover, countries that threw out pro-Western dictators are not moving closer to Iran.

Egypt's and Tunisia’s future foreign policies are more likely to resemble Turkey's in becoming more independent while remaining allied with the West. And Iran's soft power has decreased as its regime looks increasingly repressive and new models of revolutionary success have emerged in Tunisia, Egypt, and other parts of the Arab world.   

Carnegie logo Turkey, for its part, bungled the opportunity to take advantage of this historic shift to bolster its influence in the Arab world. The Arab uprisings are effectively calling for the Arab world to be more like Turkey: democratic, with a vibrant civil society, political pluralism, secularism alongside Islam, and a productive and fairly balanced economy. However, after expressing clear support for Egyptian protesters, Turkey has hedged its bets in Libya and Syria.

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SYRIA: Economic hardship feeds social unrest, says analyst Lahcen Achy

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Editor’s note: The post is from an analyst with the Carnegie Middle East Center. Neither the Los Angeles Times nor Babylon & Beyond endorses the positions of the analysts, nor does Carnegie endorse the positions of The Times or its blog.

Syria's economic challenges are feeding the population's growing anger, which recently led to protests in the south and are creating a nationwide uprising.

Despite an impressive annual economic growth rate of 5% over the last five years, reforms to gradually shift from a state-led to a market-oriented economy, and a promising trade-diversification strategy, Syria faces critical economic and social challenges. Its poverty rate remains high, with one out of every three Syrians living below the poverty line, and social and regional inequalities are increasing.

Achy The social contract that prevailed in the 1980s and 1990s -- in which the state guaranteed jobs to college graduates and offered free public services and cheap food for its population -- no longer holds.

Five factors are of particular concern:

First, with a steady population growth of 2.5% per year, about 250,000 job-seekers enter the labor market annually. The public sector, which employs about 30% of the workforce, has created about 20,000 jobs per year since the mid-1990s. Although the private sector has created jobs at two to three times this rate, it also has not kept up with population growth. The official unemployment rate is around 10% but one of two jobs is of poor quality, with low pay and no social protection. On the other hand, youth unemployment exceeds 30%.

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EGYPT: Evaluating proposed constitutional amendments

Celebrations tahrir

[Editor's note: Analysts at the Carnegie Endowment for International Peace are included among contributors to Babylon & Beyond. Carnegie is renowned for its political, economic and social analysis of the Middle East. The views represented are the author's own.]

The amendment to Egypt's constitution recently announced by Chancellor Tareq Bishri's commission -- if adopted by the Supreme Council of the Armed Forces and approved by a majority of citizens in a general referendum -- will lay the foundation for constraining the near-absolute powers granted to the president by the 1971 constitution.

They are also a positive step toward administering pluralistic legislative and presidential elections before the end of the current transitional phase. Some of the proposed amendments would help rein in presidential power in Egypt by affecting the following constitutional articles:

Picture 9 • Article 77: Shorten presidential terms to four years and limit presidents to a maximum of two consecutive terms.

• Article 148: Constrain the president's powers to announce a state of emergency and require a popular referendum to extend the state of emergency beyond six months.

• Article 179: Void presidential power to suspend citizens' civil liberties and political rights.

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TUNISIA: Dependence on Europe fuels unemployment crisis and protests

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The recent suicide of an unemployed 24-year-old man in Tunisia -- who electrocuted himself by touching a high-voltage electrical pole after shouting "no for misery, no for unemployment" — and the ensuing unrest are signs of the frustration and despair felt by the country's youth as Tunisia's economy slows.

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[Editor's note: Analysts of the Carnegie Endowment for International Peace are included among contributors to Babylon & Beyond. Carnegie is renowned for its political, economic and social analysis of the Middle East. The views represented are the author's own.]

Even as the level of education among job seekers in Tunisia has improved, the government has failed to make policies guaranteeing enough job creation to absorb new entrants to the labor market, especially among those with university degrees.

As a result, Tunisia has one of the highest levels of unemployment among Arab states: more than 14% overall and 30% among those between age 15 and 29.

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CARNEGIE ENDOWMENT: Analysts welcomed by Babylon & Beyond

Today, analysts of the Carnegie Endowment for International Peace, including the Carnegie Middle East Center in Beirut, became contributors to Babylon & Beyond. Carnegie is renowned for its political, economic and social analysis of the Middle East, and will enhance Babylon & Beyond's eclectic mix of news, features and analysis.

Neither the Los Angeles Times nor Babylon & Beyond endorses the positions of the analysts, nor does Carnegie endorse the political positions of The Times or its blog. The Carnegie Endowment does not take institutional positions; the views represented are the author's own.

-- Bruce Wallace, foreign editor, Los Angeles Times

 

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