HSBC report on Arab Spring shows the cost of hopes dashed amid wreckage

There have been many political, social and security analyses to mark the five-year anniversary of the Arab Spring, the series of events across the Middle East and North Africa that were the source of much hope and optimism in early 2011.

But there have not been many narratives of the economic consequences of those tumultuous events. Last week HSBC produced just such a piece of research. The lesson seems to be: be careful what you wish for – you might just get it.

For some, the upheavals at the time seemed to herald a bright new dawn where economies under the dead weight of kleptocratic dictatorship would be liberated from state control and dragged into the modern world. Entrepreneurs would emerge from the ruins to provide for a new class of enriched consumers eager to catch up with the rest of the world in terms of living standards, and empower the dynamic but underemployed youth of the region.

Those aspirations have been depressingly and comprehensively dashed over the past five years.

The HSBC report highlights a couple of reasons for a little optimism: Egypt’s recent bid to overhaul its foreign exchange regime, and Morocco’s outperformance of emerging market rivals on some criteria.

But these pinpricks of light fail to lift the economic gloom that has descended in the region’s economies that are not blessed with petrochemical riches.

The Arab Spring has cost Tunisia, Lebanon, Egypt, Morocco and Jordan combined some US$330 billion a year, HSBC estimates, or $2,000 for every man, woman and child. In Egypt, that is 60 per cent of annual per capital income.

Unemployment – a crucial factor in the youth-laden demographics of the region – is 2 percentage points higher now than it was five years ago.

The total budget deficit in those countries has risen to 8.1 per cent from 6.5 per cent of GDP, with a cumulative shortfall of $227bn forecast for the end of the year; government debt is soaring; the current account deficit has doubled, draining central bank reserves and forcing governments to borrow overseas at very high rates.

This gloomy state of affairs is without any input from the convulsions in Syria, Libya and Yemen.

The political, security and humanitarian crises in these countries has obviously had a hugely negative effect on their economies, which have virtually ceased to function any normal sense of the word.

It could take decades to recover from the economic repercussions of the “Syria effect”.

Egypt has recently taken measures to reform its currency and its overall economic infrastructure, but HSBC doubts that policymakers will have the confidence to follow through in the face of structural flaws and cyclical headwinds.

Tunisia, once the great hope of the 2011 changes, has gone into reverse, with a deterioration in the security situation affecting both tourism and foreign investment; Morocco, which appeared to emerge virtually unscathed, now faces its own economic challenges in agriculture and foreign tourism.

All in all, it’s a depressing lesson in the damage that large-scale political upheaval can do to economic well-being, and peoples’ lives.

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Frank Kane

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