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Waiting game

By Adam Robert Green and Eleanor Whitehead | Published:  05 March, 2012

As new and emerging governments establish political office in Egypt, Libya and Tunisia, strategies to tackle economic exclusion are still lagging

From the self-immolation of 26 year old Tunisian fruit trader Mohamed Bouazizi in protest at the confiscation of his stall, the Arab Spring has economic roots. For the last year, North Africa’s focus has been on political reform and with old regimes toppled, the world’s eyes are on elections, which are now concluded in Tunisia, underway in Egypt and scheduled in Libya. Governments and emerging parties must now start grappling with the issues of corruption, unemployment and rising inequality, but there is still little sign 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?”

Barring the initial rejection of a $3.2bn IMF loan (which is now being reconsidered), a tightening of money transfer rules to stem capital outflows, and the mulling of an Islamic bond issuance, Egypt’s interim military government has mostly sought to reassure foreign investors that Africa’s second largest economy will not shift course sharply. Minister of Industry and Foreign Trade, Mahmoud Eisa, told the US Chamber of Commerce there would be “no change” in economic policy, and the government is in talks with the World Bank over a $1bn loan.

Egypt’s Freedom and Justice Party – the political arm of the Muslim Brotherhood which looks likely to take a major share of power – supports a free market model but without ‘manipulation or monopoly’. Tunisia’s coalition government, dominated by the moderate Ennahda party, with the centre left parties Congress for the Republic and Ettakatol, has cleaved to a liberal path. Ennahda’s intellectual leader Rachid Ghannouchi has assured the business community not to fear the new order, and in October party members met stock market representatives to emphasise the party’s support for business.

Reluctance to publicly discuss policy change is in part due to fear about further economic contraction. Greenfield foreign investment in Egypt dropped from around $11- $12bn per year in 2008 and 2009 to $2bn in 2011. The central bank is spending $2bn in foreign reserves every month to plug its balance of payments deficit, while keeping the currency stable against the dollar. It desperately wants to avoid an IMF bailout, which could be conditional on potentially incendiary subsidy reform, although dismantling regressive subsidies on under-performing national assets, including oil and gas, electricity, mining and the Suez Canal, could free up $50bn for social spending.

Resource-poor Tunisia has been equally hard hit by its revolution, which cost the economy between $5 and $8bn, with FDI falling and over 80 foreign companies shutting down. While there are billions of dollars of finance and real estate holdings held abroad by the Ali family, none has yet been recovered. In May 2011, then-prime minister Caïd Essebsi said the government would need $5bn of aid annually for five years to finance infrastructure and job creation.

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