Positive Early Steps In North African Economic Recovery

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VENTURES AFRICA – The political uprisings in North Africa last year had an economic impact not just on the region but on the whole continent. North Africa’s growth was just 0.5 percent in 2011, nearing stagnation, which lead to an overall decline of average African growth from 5 percent in 2010 to 3.4 percent in 2011. North Africa traditionally accounts for around a third of the continent’s GDP. But with Tunisia, Egypt and Libya beginning to put the turmoil behind them and their economies gradually recovering, average African growth looks set to rebound to 4.5 percent this year and 4.8 percent in 2013.

Part of this recovery is due to the return of tourists to the region, with tourism a traditionally important earner for the nations involved. International tourist arrivals in North Africa and the Middle East are showing good signs of recovery after the social and political unrest that mired both regions in 2011. According to the United Nations World Tourism Organisation (UNWTO), between January and April 2012, North African arrivals returned to positive growth. Numbers were up by more than 11 percent, making the sub-region the best performer worldwide. This was thanks mainly to results in Tunisia, which saw an increase in tourism of 48 percent between January and May, and Egypt, which saw a 29 percent rise. This is in sharp contrast to a 2011 that saw sizeable slumps in tourism, thus also affecting duty free and travel retail sales in many markets.

“It is very encouraging to see demand returning to countries such as Egypt and Tunisia,” UNWTO Secretary-General Taleb Rifai. “These are long-standing tourism destinations ready to fully welcome back the millions of tourists that each year chose to visit them.”

Yet there is still work to do for the countries affected to fully recover. The Arab Spring had economic roots right from the start, from the self-immolation of 26-year-old Tunisian fruit trader Mohamed Bouazizi in protest at the confiscation of his stall. But for the last year, North Africa’s focus has been on political reform and electing new governments. With this process nearing completion, governments and emerging parties must now turn to dealing with the issues of corruption, unemployment and rising inequality. There has as yet been no sign, however, of how the region’s leaders plan to deal with the economic problems that gave rise to the revolutions.

“From after the uprising, when the political scene started to reform, up until today, I would say 99 percent of the discussion in Egypt has been on political reform. I don’t think I have seen any of the parties put forward their economic policies or programmes,” says Sherif Kamel, dean of the business school at the American University in Cairo. “What are the parties planning to do about the economy once they get into parliament?”

Establishing these policies will be crucial to the further growth of the region after the contractions of last year. Reluctance to publicly discuss policy change is in part due to fear about further economic distress. Greenfield foreign investment in Egypt dropped from around $11- $12 billion per year in 2008 and 2009 to $2 billion in 2011, with the central bank spending $2 billion in foreign reserves every month to plug its balance of payments deficit. The Egyptian government is seeking to persuade foreign investors that Egypt is still worth the risk, while also avoiding an IMF bailout. Tunisia was equally hard hit by its revolution, which cost the economy between $5 billion and $8 billion, with FDI falling and over 80 foreign companies shutting down. They too are looking to find an alternative to the aid solution.

Unemployment remains a huge problem. Wages as a share of GDP have declined, and a rise in the minimum wage was a key demand of protesters. North Africa’s population is young, so work opportunities must expand rapidly not just for those out of work, but for the millions coming up behind them. Since unemployment is highest among the most educated, education reform is also important. But growth is required to fix all of these issues

The increase in tourism figures, providing a much-needed source of foreign capital, is the first major step on the road to recovery. The fact that oil production is now back on stream will also help. It is a good start, but the North African countries must go further in righting the wrongs of 2011. External investment will also help resuscitate the battered economies. Tunisia’s Foreign Investment Promotion Agency’s Mr Zekri says there has been increased interest from foreign companies looking to invest from the UK and US, as well as Arab, Asian and Scandinavian regions. Efforts are underway to strengthen bilateral economic ties, with Tunisia looking to build on relations with Turkey and the US. Egypt should follow their lead in cementing these ties.

 

 

 

 

 

 

 

Image via worldcrunch