Before the start of the political upheaval in the Middle East and North Africa, developing countries of the region had been poised to improve economic performance over 2011-12, returning to GDP gains of near 5 percent.1 Indeed, lack of tight international connections in finance and non-oil goods trade allowed developing Middle East and North Africa2 to experience less adverse effects from the financial crisis and global recession of 2008-09 than other developing regions.
But recovery in 2010 disappointed, with regional growth falling below expectations to 3.1 percent, the slowest growth among developing regions in a year of buoyant gains for developing economies.
The Arab Spring. Revolutions and unrest have disrupted economic activity across almost every country in the region over the first months of 2011, and will continue to restrain growth in a number of countries at least for the year, and potentially for more. For those parts of the region where unrest has been less marked, higher oil prices (linked tightly to developments in the Middle East and North Africa) will be a boon for some and a drag on growth for others. And higher food prices will exact an increasing toll on external balances across all countries. Economic and social impacts are likely to be substantial in the short term as production, trade, services and other elements of economic activity slip; and fiscal revenues, tourism and FDI receipts come under increasing pressure. Consumers will be further affected as inflation heats up, tied among other factors to developments in oil and food prices.
Taking current- and anticipated developments for 2011 into consideration, a comparison of the January 2011 projections with revised forecasts prepared in April, yields a sobering conclusion. GDP growth for the developing region is likely to suffer a 3.1 percentage point mark-down for the year, from gains of 4.9 percent expected in January to 1.8 percent anticipated in April.3 Those economies hardest hit include Egypt (down 4.5 percentage points), Tunisia (3.3 points) and Jordan (1.5 points).
Political-economy developments in countries where protests- and authorities’ responses occurred earliest—Tunisia and Egypt—could play a strong role in shaping other outturns in the region. And as evidenced from the first months of 2011, there are a variety of political responses across the Arab world. Progress may be more likely in countries like Tunisia, as well as in the monarchies (Jordan and Morocco) where popular pressure will continue to have well-established channels in which to be expressed. In the broader view of the World Bank, if these political events and economic externalities are followed by sound transitions to better governance structures, in looking forward, they should provide a unique opportunity to change Middle East and North Africa’s political and social landscape (see Forecast summary table).4
The parameters of political and economic disturbance in 2011. With the exception of several GCC economies, every country in the region has been affected—to varying degrees by the Arab Spring.
Among important observed and anticipated economic developments for 2011:
- Oil prices are likely to remain high amid the Libyan crisis and market fears of potential supply disruptions tied to unrest in larger oil exporters;
- Oil exporters that are less troubled by protest (e.g. Algeria, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) will likely see windfall gains from higher oil prices—but net fiscal revenues will be reduced by use of funds for financial packages intended to address social unrest;
- Oil importers will suffer—especially those that choose to provide energy and food subsidies. Higher food prices will accentuate inflation pressures; and
- Egypt, Tunisia, Libya, and potentially Syria, will be most affected, as continued uncertainty, economic disruption and lapse in tourism revenues dampens growth in the former two, while Libya—and to a lesser degree, Syria— may face prospects of prolonged violence or civil war. Those countries which have experienced the longest protests will suffer lower growth- with investment coming to be particularly adversely affected.
1 Global Economic Prospects: “Navigating Strong Currents”. The World Bank. January 2011. Internet. And “Sustaining the Recovery and Looking Beyond”, A Regional Economic Outlook. Middle East and North Africa Region. The World Bank, January 2011.
2 The low-and middle income countries of the region included in this report are Algeria, The Arab Republic of Egypt, The Islamic Republic of Iran, Jordan, Lebanon, Morocco, the Syrian Arab Republic, Tunisia and Yemen. Data is insufficient for the inclusion of Djibouti, Iraq, Libya and the West Bank and Gaza. The high-income economies included here are Bahrain, Kuwait, Oman and Saudi Arabia. Data is insufficient for the inclusion of Qatar and the United Arab Emirates. The group of developing oil exporters includes Algeria, the Islamic Republic of Iran, the Syrian Arab Republic and Yemen. The diversified economies of the region (oil importers) may be usefully segmented into two groups: those with strong links to the GCC (Jordan and Lebanon), and those with strong EU links (The Arab Republic of Egypt, Morocco and Tunisia).
3 See “Middle East and North Africa Economic Recovery Weakened in the Midst of Arab Uprisings,” A Regional Economic Update. Middle East and North Africa Region. The World Bank. April 2011.
4 See "Arab World Brief," Shamshad Akhtar. Vice President, World Bank, Middle East and North Africa region. February 2011.