The List

The Arab Recession

They may be cheering for democracy, but for most countries affected by the Arab Spring the economic news will have them crying.

Mohammed Bouazizi's final act of hopelessness -- setting himself ablaze in front of a government building in Sidi Bouzid, Tunisia, on Dec. 17, 2010 -- touched off a wave of civil unrest that toppled two governments, threatens to bring down at least three others, and has redefined the relationship between the ruler and the ruled across the Arab world. But the protests, which were spurred by rising food prices and unemployment, have bequeathed a cruel irony to their makers: A worsening of the very same conditions that sparked the Arab Spring.

The economies of Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia are projected to shrink by a collective 0.5 percent this year, reversing 4.4 percent growth in 2010, according to a report published by the Institute of International Finance in May. In Yemen and Libya, which are still in turmoil, the numbers will likely be worse; and the growth forecast for the North African region as a whole has fallen from 4.5 percent in 2010 to less than 1 percent this year, according to the African Central Bank.

Even among the Gulf Cooperation Council (GCC) countries, some of which enjoyed revolution-induced oil windfalls, the Arab Spring has produced economic losers. Bahrain, in particular -- which sent capital and bank employees scuttling when it violently quelled protests, killing at least five demonstrators, and declared a three-month state of emergency earlier this year -- could potentially forfeit its position as one of the region's financial hubs. As Marina Ottaway, director of the Middle East Program at the Carnegie Endowment for International Peace, told Foreign Policy, many of the international banks that were headquartered in Bahrain "have just pulled up and gone. And they are probably not going to come back."

Capital flight has also hamstrung other Arab countries. Jordanian Finance Minister Mohammed Abu Hammour recently estimated that $500 million is "leaving the Arab world" every week as a result of the unrest. But not all the economic news is bad. Before the revolution, governments across the region were playing an "impeding role" in the economy, said Ossama Hassanein, senior managing director of Newbury Ventures, who argued that macroeconomic growth in the old regimes "came at the cost of great corruption and inefficiency." Today, he estimated that the number of entrepreneurs in the Middle East has multiplied by a factor of ten, fueled by "interest in promoting a private economy led by entrepreneurship and innovation."

The revolutionary fervor of the past year has no doubt affected the Arab word's diverse economies differently. Here is a look at some of the Arab countries that were hit the hardest during this revolutionary season -- and some that seem to have weathered or even gained from the storm.



It goes without saying that Libya's civil war has wreaked havoc on its economy. Africa's third-largest oil producer before the outbreak of unrest in February, Libya's gross domestic product grew by 10.3 percent in 2010, according to the International Monetary Fund (IMF). It is projected to contract this year, but by how much is anybody's guess. The Qaddafi government in Tripoli has already estimated that conflict has cost Libya some $50 billion dollars.

For the rebel Transitional National Council in Benghazi, things aren't much better: Billions of dollars worth of frozen Libyan assets remain off limits and the only major source of income, oil, remains trapped beneath the Arabian Gulf Oil Company's (Agoco) damaged drilling equipment. According to Agoco information manager Abdeljalil Mayouf, who spoke with Al Arabiya last week, "We are not producing. Everything is under repair. I can't tell you a date to restart." The gas pipeline that normally fuels power plants in Benghazi and other eastern Libyan cities is also shut down, forcing the former petro-giant to import fuel, for which it has so far been unable to pay. Several European oil tankers have left Benghazi without unloading when the rebels were unable to put up the cash, the Los Angeles Times reported



The economic situation in Yemen after months of unrest is, well, "shit" -- according to a Yemeni man quoted in the Economist. Persistent fuel, electricity, food, and water shortages have all but paralyzed the country's industrial output, which is responsible for roughly $17 billion in losses over the last six months, according to the deputy chairman of the Yemeni Chamber of Commerce.

To be sure, Yemen's economy was struggling before protests against the government of President Ali Abdullah Saleh erupted in January, but subsequent unrest has pushed its financial situation to the brink of collapse. Last month, the IMF downgraded its outlook for Yemen, predicting a contraction in gross domestic product, although it declined to say by how much. It also warned that inflation could reach as high as 30 percent, compounding the hardship faced by Yemenis, 40 percent of whom already live on less than $2 per day.



President Bashar al-Assad's brutal crackdown on demonstrators bodes about as well for Syria's economy as it does for democracy. The bloody affair has spooked investors and derailed at least three major Gulf investment projects, according to Al Arabiya. It has also virtually extinguished the tourism industry, previously one of Syria's fastest-growing sectors.

The IMF lowered its growth projections for Syria in April to 3 percent, down from 3.2 percent in 2010, but the Institute of International Finance's prediction that the Syrian economy will shrink by 3 percent this year is starting to look more likely. U.S. and European sanctions -- some directed at Assad and his top aides -- could make things worse for the cash-strapped country. Syria, which has no credit rating, cannot borrow on the international lending market and has traditionally relied on Gulf monarchies such as Kuwait for cash infusions. But according to a recent report, Iran, Syria's ally to the east, may help keep Damascus afloat with a $5.8 billion loan.



The 18-day revolution that deposed President Hosni Mubarak and left more than 800 protesters dead may have excited the animal spirits of Egypt's youth, but it's caused a marked downturn in the economy. Tourism, which brought in $12.5 billion last year, has suffered mightily as vacationers from Europe and the Gulf have opted for more stable destinations. With 90 percent of the country's wealth controlled by some 200 families, according to Hassanein, Egypt has also seen much of its capital disappear in recent months. "A number of wealthy families have fled the country to avoid investigation [for corruption]," he says.

The Egyptian military council now in control of the country poses yet another impediment to economic recovery. The military runs numerous enterprises -- from seaside resorts to car manufacturing plants -- and enjoys tax exemptions, employs conscripted labor, and buys public land at below-market prices. Such distortions are likely to persist in the "new Egypt," as the military has already moved to shield its budget from public oversight. And joblessness, up 3 percent in 2011, will continue to plague Egypt, which had its growth projections lowered to 1 percent by the IMF in recent weeks. But analysts remain hopeful that the Egyptian economy will right itself in the coming months. "Egypt is not a basket case economically," said Ottoway. "The fundamentals of the Egyptian economy have not changed," she said, suggesting that pre-revolution growth levels could again be achieved.

John Moore/Getty Images


The first country to oust its authoritarian ruler, Tunisia has had a bumpy road to economic recovery. Just last week, Tunisia's National Office of Tourism announced that 3,000 jobs have been lost since President Zine al-Abidine Ben Ali was sent packing to Saudi Arabia on January 24. Tourism typically accounts for 7 percent of Tunisia's gross domestic product. According to Finance Minister Jalloul Ayed, the "Growth for the whole of 2011 is forecast between zero and one percent." The Tunisian economy grew 3.7 percent in 2010, by comparison.

But with its small, well-educated and relatively homogeneous population, Tunisia may bounce back faster than Egypt, which faces more significant structural challenges. "The underlying assumption [of those watching events in Tunisia] is that things will improve," said Ottoway. "The things that were working before economically, will work again in the future."



Protests erupted in the tiny Persian Gulf island of Bahrain in mid-February, sending the regional financial hub -- and the capital for Islamic banking -- into a tailspin. When a three-month state of emergency was declared on March 15 and Saudi Arabian troops streamed across the causeway into the capital city of Manama, many international banks scrambled to relocate elsewhere in the Gulf. The result, some analysts fear, is that Manama may follow the path of Beirut, which lost its position as the region's financial hub after the Lebanese civil war.

Suzanne Maloney, a senior fellow at the Saban Center for Middle East Policy at the Brookings Institution, told FP in an email, "As it stands now, Bahrain's appeal for Western investors and companies has been significantly eroded by events." The postponement and subsequent cancellation of the Formula One motor race scheduled for March of this year highlights "the reputational consequences of conducting business as usual even well after the crackdown on protestors," she said.

Still, Bahrain's growth outlook for 2011 -- which at 2.7 percent makes it the worst performer in the GCC, according to analysts in a Reuters poll -- is better than most countries affected by the Arab Spring. Moreover, with Saudi Arabia eager to maintain stability (it spearheaded a GCC pledge of $20 billion to stabilize Bahrain and Oman) the home of the U.S. Navy's 5th Fleet is unlikely to sink anytime soon.

John Moore/Getty Images


Despite hosting regional media-giant, Al Jazeera -- known to many as the voice of the Arab revolutions -- Qatar has remained the picture of quietude over the past few months. And perhaps more spectacularly, the tiny Arab emirate is set to grow by 20 percent this year, giving it the distinction of the world's fastest-growing economy. But the long-term outlook for Qatar and other Gulf monarchies that initially benefitted from oil windfalls may not be as rosy. Indeed, Qatar's growth rate is projected to slow to a more modest 7.1 percent in 2012. And according to Maloney, the increase in social spending used to co-opt restive populations can't be sustained by temporarily inflated oil prices alone. "It seems highly unlikely that the massive infusion of social spending will eliminate the fundamental problems that these states have in creating competitive non-oil economies," she notes.

But mounting domestic financial obligations haven't kept Qatar from funneling petrodollars elsewhere in the region: Emir Hamad bin Khalifa al-Thani was one of the earliest supporters of the Libyan rebels -- supplying cash and weapons -- and was instrumental in marshalling Arab support for a no-fly zone. Qatar has also expressed interest in establishing a Middle East development bank that would assist countries undergoing democratic transition, although there has been no real movement on the issue following Prime Minister Shaikh Hamad bin Jasem al Thani's announcement in May. Such a bank would be modeled after the European Bank of Reconstruction that aided Eastern European countries after the fall of the Berlin Wall, according to the Christian Science Monitor. But when the fight for democracy came a little closer to home, however, Qatar had no qualms about being on the other side of a revolution: It readily deployed troops along with Saudi and Emirati forces to help put down the Shiite-led protests in Bahrain. 

For now, at least, the Gulf states -- and their economies -- seem to have dodged a bullet.


The List

Parliamentary Funk

The United States isn't the only country whose legislature just doesn't work.

The debt-ceiling negotiations going on in Washington right now have not, to put it mildly, cast the collected membership of the U.S. Congress in the most flattering possible light. In theory, members of Congress are meant to serve as enlightened representatives of their local districts, virtuous stewards of the common good. But the last several weeks have offered instead a portrait of shallow partisans willing to risk global economic catastrophe for the sake of indulging their personal vanity and furthering their own agendas, and a legislature unable to accomplish even the most basic of tasks.

Sadly, the United States is not the only country suffering from its lawmakers in this fashion. Legislative gridlock is commonplace -- as are the partisanship and vanity at its root -- in governments around the world. At least the United States can blame the creakiness of its institutions on the fact that they were designed some 200 years ago: Most other countries don't have nearly such a convenient excuse -- and, yet, they act just as shamelessly.


Think America's divided government is a hassle? Try not having a government at all. Belgium has lacked a functioning parliamentary majority for more than a year, ever since its last national election on June 13, 2010. Negotiations to form a new majority have broken down eight times over the past 400 days, as the country earned the dubious distinction of entering the Guinness World Records for the longest period of time without a government. The major Belgian parties aren't just talking past one another; they don't even share the same native language -- and that's a big part of the problem. Belgium's Flemish-speaking region wants to secure more financial autonomy, the better to enjoy the rewards of its economic success, but the country's French-speaking territories, dependent as they are on Flemish tax receipts to maintain their welfare provisions, have refused.

In the absence of any majority in Parliament, previous Prime Minister Yves Leterme has continued to preside over cabinet meetings, though proposals for ambitious legislation have been put on hold indefinitely. That's not to say, however, that Belgians necessarily notice any disruption in their daily lives. Many state functions, from education to welfare, are already administered at the regional, rather than the federal, level. Leterme's caretaker government, meanwhile, did succeed in serving its pre-scheduled six-month stint as president of the European Council in 2010. And in 2011, Belgium managed to send four fighter jets and 150 military personnel to enforce the no-fly zone over Libya.

Apparently, the reason that Parliament has yet to call for a new election is for fear that the international community (and bond markets) will judge the country incapable of solving its problems (though one would have thought that train had long ago left the station). Presiding over the stalemate, and tirelessly goading all parties to reach a final resolution, is the lonely King Albert II -- among the few symbols of national identity, apart from frites, that enjoys broad recognition throughout the country.



With political and sectarian violence still common throughout their country, Iraqi parliamentarians could perhaps be forgiven some measure of cynicism about the democratic process. Still, the zero-sum strategies of sectarian parties have managed repeatedly to nearly push the country's entire parliamentary system off the brink, and calls for election boycotts by Sunni parties have been common in Iraq's short democratic history. Sunni threats to boycott the 2005 parliamentary elections proved especially detrimental to the political atmosphere, fanning the flames of the ongoing low-level sectarian civil war.

Sunni parties called for boycotts again in 2010, after Shiite parties pushed to disqualify hundreds of Sunni candidates because of their alleged affiliations with the Baath Party. With sectarian tensions primed by that show of Shiite power, the parliamentary election on March 7, 2010, produced a stalemate. After nine months of threats and aggrieved posturing -- and cajoling interventions by the United States -- the legislative body finally confirmed a new government with incumbent Prime Minister Nouri al-Maliki at its head in December 2010.

Little significant legislation has passed since then, though the parliament did agree this month to formally blame the United States for continuing violence along Iraq's borders. But Iraq has yet to pass an oil revenue-sharing law, something that could tamp down major sectarian strife. The parliament also has yet to address the status of the semiautonomous Kurdistan region, a subject of dispute that may also eventually spark a civil war.



If Japan's parliament has seemed slow in responding to the disaster at Fukushima Daiichi nuclear power plant, that's partly by design. Although the national parliament is meant in theory to serve as the country's highest lawmaking body, in reality it's subordinate to a branch of government largely invisible to the public: the elite civil service, made up of senior ministry bureaucrats who basically write policy before it's perfunctorily debated and rubber-stamped into law by parliament.

Conditioned in deference, the parliament has little redress apart from withdrawing its formal support of the government and forcing the selection of a new prime minister or a new round of elections. Unsurprisingly, Japan has had five prime ministers in the past five years, but little in the way of major legislation, despite the fact that a major debt crisis seems to be looming on the horizon, with gross government debt soaring to over 200 percent of GDP this year.

In the case of the meltdown of Fukushima's nuclear reactors this year, the toothlessness of Japan's parliament was starkly exposed, as lawmakers were unable to compel bureaucrats in the government or in the Tepco power utility to give truthful testimony about the extent of damage to the reactors and the threat of exposure to dangerous radioactivity.



The Afghan parliament is among the few structural checks on the power of President Hamid Karzai, but that's not to say it's a particularly effective one: Its independence has repeatedly come under attack by Karzai and his allies.

In June, Karzai appointed a tribunal to re-examine the results from the most recent parliamentary elections. One week later, the court revoked 62 seats, 25 percent of the number awarded the previous September. Members of parliament made a symbolic show of protest by slapping their desks in unison, but most held their tongues for fear of earning Karzai's ill favor. One Karzai ally appointed to a newly open seat who did feel compelled to refute allegations that the tribunal acted unjustly compared the process to the U.S. Supreme Court's intervention in the disputed 2000 presidential contest between George W. Bush and Al Gore.

Karzai's own belief that he needn't defend the legality of the tribunal process signals a waning national confidence in the parliament. That may make it harder for Kabul and Washington to eventually reach a political settlement to end the ongoing war, as it might confirm the Taliban's suspicions that the only way to effectively oppose Karzai is through military, rather than peaceful, means.

Eric Kanalstein/Getty Images


With a system designed to produce divided government -- the executive and legislative branches are elected independently of one another -- Taiwan's gridlocked status quo may sound familiar to Americans. But those original sins are exacerbated by the hyperpartisan politics of this relatively new democracy. The main "blue" and "green" party coalitions don't just oppose one another -- they despise each other. Indeed, they have a greater tradition of engaging in fistfights in the halls of government than cooperating on policy.

Taiwan's eight years of divided government during the previous decade produced an utter and acrimonious political stalemate. At the time of the Asian financial crisis in 2000, the Taiwanese government was paralyzed and generally acknowledged to have acquitted itself poorly in its attempts at crisis management. As much of the region was working furiously to maintain good standing with the international bond markets, Taiwan's parliament was busy trying to impeach President Chen Shui-Bian because of a disagreement over energy policy.

Taipei currently has both branches of government under the control of a single party, but polls show that this may change in the parliamentary and presidential elections scheduled for 2012.