THE SOUTHERN MEDITERRANEAN ECONOMIES AFTER THE …iei1946.it/RePEc/ccg/AMATO_MOISELLO 295_332.pdf296...

THE SOUTHERN MEDITERRANEAN ECONOMIES AFTER THE ARAB SPRING

Amedeo Amato *, Andrea Moisello **

intrOduCtiOn

In December 2010, countries of the Mediterranean south coast were involved ‑ some extensively, others marginally ‑ in a series of protests that were to become known as the “Arab Spring”.

This revolt, which spread also thanks to the internet and social networks, led to a change of government in three countries (Tunisia, Egypt and Libya). Elsewhere (Algeria, Morocco, Lebanon and Jordan), the protests did not bring about a regime change and the status quo in these countries currently appears to have been re‑established. In Syria, however, violent protests against the Assad regime continue.

Unrest in the area exploded only a few days after the Institute for International Economics of the Chamber of Commerce of Genoa had organised a conference to present the findings of the Permanent Observatory on Southern Mediterranean Economies.

Events in the area inevitably had economic effects that differed, in some cases also considerably, from the macroeconomic forecasts prepared by all research bodies working on economic forecasts for the Mediterranean south coast.

For this reason we believed that it was appropriate to delay the publication of the November 2010 conference proceedings so as to take account of the events described above. The present volume therefore contains the proceedings of both the 2010 and 2011 conferences. This work is divided into three sections:

1. section one provides a timeline of the main events that took place in Mediterranean south coast countries; these events represent

* Editor.** University of Genoa.

296 The Southern Mediterranean economies after the Arab Spring

an essential background for the detailed economic and political analyses that follow;

2. section two reviews the principal country risk models and offers suggested improvements;

3. section three provides summary and conclusions.

1. timeline Of ArAb sPrinG

17 Dec 2010 Tunisia – jobless graduate Mohamed Bouazizi starts selling vegetables without a permit. When police seize his cart he sets fire to himself. The act, following Wikileaks publication of US criticism of the regime, provokes young Tunisians to protest.

29 Dec Tunisia – after 10 days of protests, President Ben Ali appears on television promising action on job creation. He declares the law will be very firm on protesters.

1 Jan 2011 Egypt – 21 dead and more than 70 injured after bomb explodes outside Coptic church in Alexandria.

4 Jan Tunisia – Mohammed Bouazizi, the Tunisian graduate whose attempted suicide set off violent protests over unemployment across the North Africa nation, dies in a hospital outside Tunis. Mohammed Bouazizi was visited by President Ben Ali before his death.

7 Jan Algeria – Police respond with tear gas to demonstrators throwing stones and setting up barricades in Algiers during protests over food prices and unemployment.

9 Jan Tunisia – 11 people die in clashes with security forces. Protesters set fire to cars in several Tunisian cities; security forces respond violently.

13 Jan Algeria – Mohsen Bouterfif burned himself to death after failing to find a job and a house, in an apparent echo of a suicide that began the Tunisian protests.

14 Jan Tunisia – Ben Ali finally bows to the protests and flees to Saudi Arabia by way of Malta.Libya – Gaddafi condemns the Tunisian uprising in a televised address. First reports of unrest in Libya.

17 Jan Egypt – A man sets fire to himself next to the parliament building in Cairo in protest of economic conditions.

Permanent Observatory on Southern Mediterranean Economies 2011 297

18 Jan Egypt – Diplomat Mohamed El Baradei warns of a Tunisia‑style explosion in Egypt.

19 Jan Tunisia – Switzerland’s federal council agrees to freeze any Ben Ali’s assets.

24 Jan Tunisia – President Sarkozy promises emergency financial aid to the interim government.

25 Jan Egypt – The first coordinated demonstrations turn Cairo into a war zone as protesters demand the ousting of President Hosni Mubarak. In response, mobile and network connections are stopped.

Lebanon – Supporters of the ousted prime minister Saad Hariri stage a “day of rage” over the likely appointment of the Hezbollah‑backed Najib Mikati as his successor.

26 Jan Egypt – As security forces use tear gas and beatings, hundreds are arrested, including foreign journalists. EU leaders condemn the tactics.

27 Jan Egypt – Opposition leader Mohamed ElBaradei returns to Egypt to join anti‑government protests.

28 Jan Egypt – After four days of protests and 25 deaths, Mubarak makes his first TV appearance, pledging his commitment to democracy. He sacks his government but refuses to step down.

Jordan – Thousands of people gather in the capital Amman to demand political change

29 Jan Egypt – Mubarak appoints his intelligence chief and confidant, Omar Suleiman, as his first‑ever vice‑president in the first sign of a possible succession plan. The death toll reaches 100.

30 Jan Egypt – Al Jazeera TV is ordered to stop its reporting of the protests.

31 Jan Egypt – The army declares itself allied to the protesters. The new vice‑president offers talks with the demonstrators.

1 Feb Egypt – Mubarak declares he won’t run in the next election, but will oversee the transition, a position immediately rejected by demonstrators.

2 Feb Egypt – Mubarak supporters stage brutal bid to crush Cairo uprising. Using clubs, bats and knives, they start a bloody battle in Tahrir Square.


3 Feb Egypt – According to vice‑president, Omar Suleiman, rioting is chasing away foreign tourists and investors. He says Egypt has lost at least $1bn in tourism in nine days and that a million tourists have left.

4 Feb Egypt – In the biggest demonstration yet, hundreds of thousands of people stage a “day of departure” protest in Cairo’s Tahrir Square. Mubarak stays put.

7 Feb Egypt – New cabinet announces a 15% rise in salaries and pensions to try to draw the sting from public protests calling for Hosni Mubarak’s resignation. Demonstrators are unmoved.

10 Feb Egypt – President Obama demands Mubarak presents his path to democracy.

11 Feb Egypt – After 18 days of mass protest, Mubarak resigns and hands power to military.

12 Feb Algeria – Police beat back around 2,000 demonstrators who try to rally in central Algiers as aftershocks from the Egyptian revolution rumble throughout the Middle East.

13 Feb Egypt – Military reject protesters’ demands for a swift transfer of power to a civilian administration, suspending the constitution and saying it will rule by martial law until elections.

15 Feb Egypt – Britain’s Serious Organised Crime Agency begins tracing the bank account of Mubarak’s cabinet.

16 Feb Libya – Protests erupt in Benghazi after the arrests of a human rights activist.

17 Feb Libya – Government brings out its supporters to express their loyalty to try to stifle a planned “day of rage”, but sporadic violence continue in the east with at least 15 people reported killed.

18 Feb Libya – Dozens of protesters are reported killed during attacks by security forces in eastern cities including Benghazi, with conflicting reports from the region impossible to verify because of the media blackout imposed by the Gaddafi regime.

20 Feb Libya – The death toll passes 230 as Gaddafi’s son addresses Libyan TV defending his father.


21 Feb Libya – Two Libyan air force pilots flee to Malta after being ordered to bomb civilians. Libyan diplomats in several countries and international organisations resign in protest at the regime’s violent crackdown. Oil prices hit a two‑year high.

Morocco – Thousands protest peacefully in Rabat, Casablanca, Tangier and Marrakech demanding a new government and an end to corruption.

22 Feb Libya – Muammar Gaddafi delivers a rantint TV address urging loyalists to take to the streets to fight “greasy rats” in the pay of enemies ranging from the US to al‑Qaida. He insists he will die in Libya rather than flee.

24 Feb Libya – Opposition activists increase the pressure on Muammar Gaddafi’s ailing regime, shutting down oil exports and mobilising rebel groups in the west of the country as the revolution rapidly spreads.

25 Feb Libya – As uprising reaches the heart of Tripoli, protests erupt across Middle East.

27 Feb Libya – Residents celebrate, as revolutionaries take control of Zawiyah, 30 miles from Tripoli.

Tunisia – Renewed turmoil as Mohamed Ghannouchi resigns as the prime minister of the post‑revolutionary government.

2 Mar Libya – A mass airlift of Egyptian refugees from the Libyan‑Tunisian border to Cairo involving British, French and Tunisian planes begins, as the international community moves to prevent a humanitarian disaster.

3 Mar Libya – The International Criminal Court says it will investigate Gaddafi for possible crimes against humanity.

4 Mar Egypt – New prime minister, Essam Sharaf, appointed by the military, calls on thousands of cheering protesters in Tahrir Square to rebuild the country.

6 Mar Libya – British diplomatic efforts to reach out to Libyan rebels ends in humiliation after a team of special forces are briefly detained by farm workers.

7 Mar Libya – The UN secretary general calls for an end to attacks on civilians.


9 Mar Libya – Gaddafi warns the imposition of a no‑fly zone in Libyan airspace will be met with armed resistance.

Tunisia – Tunisian court rules that the party of former President Ben Ali will be dissolved. The news is followed by street celebrations.

11 Mar Libya – Sarkozy calls for targeted air strikes against the Libyan regime if Gaddafi’s forces use chemical weapons and air strikes against rebel forces.

13 Mar Libya – An al‑Jazeera cameraman, Ali‑Hassan al‑Jaber, died near the rebel‑held city of Benghazi in eastern Libya after he was hunted down and ambushed by forces loyal to Muammar Gaddafi, according to sources at the broadcaster.

14 Mar Libya – The rebel leadership urges Western powers to assassinate Gaddafi and launch military strikes.

18 Mar Libya – The UN backs a no‑fly zone. The security council votes in favour of “all necessary measures short of an occupation force” as Tripoli regime warns of counterattack.

19 Mar Libya – Operation Odyssey Dawn begins, marking the biggest assault on an Arab regime since the 2003 Iraq invasion.

Syria – Police seal off the southern city of Daraa after security forces kill at least five protesters in the gravest unrest in Syria for years.

20 Mar Morocco – Thousands of people march in cities across Morocco after King Mohamed fails to act on constitutional reform pledges made after last month’s protests.

21 Mar Libya – A building in Colonel Gaddafi’s compound in Tripoli is destroyed in the second night of air strikes against the regime.

23 Mar Libya – Britain, France and the US agree that Nato will take military command of Libya’s no‑fly zone.

Syria – Syrian forces kill at least six people in an attack on a mosque in the southern city of Deraa, the site of protests challenging President Assad’s regime.

24 Mar Libya – French fighter jets destroy a Libyan plane in Misrata: the first enforcement of the no‑fly zone.


25 Mar Jordan – One person killed and 100 wounded when government loyalists attack a weekly pro‑reform vigil in Amman.

26 Mar Syria – The UN urges the government to show restraint after new clashes in Latakia, where two people are reportedly shot dead, and in the southern towns of Tafa and Deraa.

Libya – The strategic town of Ajdabiya falls to rebels.27 Mar Libya – Turkey offers to broker a ceasefire, warning

against a long conflict.28 Mar Libya – Rebels advance on Sirte, Gaddafi’s home

city, recapturing several towns without resistance on the way.

Syria – Security forces fire shots and tear gas to disperse up to 4,000 protesters in Deraa.

29 Mar Syria – President Bashar al‑Assad sacks his cabinet amid the worst unrest in decades.

30 Mar Libya – Foreign Minister Moussa Koussa flees to the UK in a fight arranged by British intelligence.

1 Apr Libya – The Gaddafi regime starts talks with west.7 Apr Libya ‑ Turkey proposes a path to peaceful resolution

to the deadlocked conflict in Libya, involving a withdrawal by Gaddafi’s forces from cities held by the rebels, a humanitarian corridor to allow aid to enter and democratic reform.

9 Apr Syria – Anti‑government demonstrations spread across Syria with highest turnout yet. At least 22 are killed in Daraa.

10 Apr Egypt – Mubarak gives his first public address since his removal from power to deny that he stole billions of dollars from his country’s coffers, as a new wave of protests turns against the military.

11 Apr Libya – The revolutionary council rejects a peace initiative because didn’t require Gaddafi to immediately relinquish power.

13 Apr Egypt – Former president Mubarak is detained after reportedly suffering a heart attack and his two sons are held in prison as officials investigate allegations of corruption and abuse and the squandering of public funds.


Libya – The 21‑member “contact group” of Arab and western ministers meeting in Qatar unanimously declare that “Gaddafi’s regime has lost all legitimacy and he must leave power”.

15 Apr Libya – Obama signals America’s return to the forefront of the international effort in Libya. In a joint article with Cameron and Sarkozy, he commits to military action until Gaddafi has been removed.

19 Apr Syria – Government approves the lifting of a draconian, 48 year‑old emergency law in the biggest concession yet made by President Assad, after a month of unrest.

20 Apr Libya – Two leading photojournalists have been killed covering escalating violence in Misrata.

21 Apr Libya – The White House approves the use of missile‑armed Predator drones to help NATO target Colonel Gaddafi’s forces.

25 Apr Libya – The government accuses NATO of trying to assassinate Gaddafi after two air strikes in three days hit his premises in Tripoli.

Syria – Tanks are deployed for first time. The US announces new sanctions.

28 Apr Syria – Hundreds of ruling Baath party MPs resign in protest as an increasingly bloody crackdown kills 500.

1 May Libya – The British embassy in Tripoli is burnt and other western missions ransacked in retaliation for Nat’s air strike. Britain responds by expelling Libya’s ambassador to London.

2 May Syria – Prominent intellectuals and activists go into hiding.

3 May Egypt/Libya/Tunisia – The Swiss government says it has identified potential assets to be frozen worth 830million Swiss francs belonging to Libyan leader Muammar Gaddafi and the ousted presidents of Egypt, Hosni Mubarak, and Tunisia, Zine El Abidine Ben Ali.

6 May Syria – Violent crackdown on protesters continues, with at least 16 killed during a “day of defiance”.

8 May Libya – Dozens of migrants who boarded a boat in Tripoli to Lampedusa were left to die in the


Mediterranean after EU military units ignored their cries for help.

9 May Syria – The EU imposes an arms embargo and other sanctions on Syria but does not penalise Assad personally.

15 May Libya – A network of Libyan defectors, including the former regime stalwart Moussa Koussa, are passing information to NATO to help it destroy Muammar Gaddafi’s military sites.

16 May Libya – Gaddafi, his son Saif‑al‑Islam, and intelligence chief Abdullah Senussi are named as war crimes suspects by the chief prosecutor for the international criminal court.

19 May Syria – Obama urges Assad to lead the democratic transition, or to resign.

23 May Syria – EU imposes sanctions target Assad.24 May Libya – NATO hits Tripoli with more than 20 air

strikes, hitting the area around Muammar Gaddafi’s residential compound in the heaviest bombing raid yet.

27 May Egypt/Tunisia – G8 leaders pledge $20bn of loans and aid to Tunisia and Egypt over two years and suggest more will be available if the countries continue on the path to democracy.

28 May Libya – A rare daytime strike by NATO aircraft on Tripoli destroys the guard towers at Muammar Gaddafi’s compound.

4 Jun Syria – Forces kill at least 100 protesters in two days of bloodshed.

Libya – British army Apache helicopters attack Gaddafi’s troops for the first time.

5 Jun Syria – Israeli troops clash with protesters on the Syrian border for the second time in three weeks.

6 Jun Syria – Government vows retaliation after claiming 120 of its security forces were killed in attacks in and around Jisr al‑Shughour.

14 Jun Tunisia – Election is delayed until October to give participants more time to prepare.

20 Jun Tunisia – Former president and his wife sentenced to 35 years in jail after being found guilty of theft in absentia by a Tunisian court.


27 Jun Libya – International criminal court orders Muammar Gaddafi and his son Saif al‑Islam to stand trial on charges of torturing and killing civilians and rebels.

29 Jun Libya – NATO is reviewing the conduct of its military campaign after France admitted arming rebel fighters for the advance on Tripoli in apparent defiance of the UN mandate.

1 Jul Syria – The US increases pressure on President Assad to implement “genuine reforms” on the biggest day of protest since the uprising began nearly four months ago.

8 Jul Libya – Muammar Gaddafi threatens to send hundreds of Libyans to launch attacks in Europe in revenge for the NATO‑led military campaign against him.

11 Jul Syria – French embassy guards in Damascus fire live ammunition to disperse Assad loyalists who tried to break in the compound in protest at the envoy’s visit to the opposition stronghold of Hama.

13 Jul Egypt – Democratic parliamentary elections could be postponed from September to November, amid a standoff between the ruling military council and protesters who believe their revolution is being betrayed.

15 Jul Libya – Rebels win political recognition as the legitimate authority and the promise of huge financial support at an Istanbul meeting of the international “contact group”.

18 Jul Libya – Rebels backed by NATO air strikes fight their way into parts of the government held town of Brega.

19 Jul Libya – US and Libya hold first direct talks since the beginning of the conflict but don’t reach any agreement.

21 Jul Libya – Rebels capture chief of operations, General Abdul Nabih Zayid in Misrata.

24 Jul Syria – Assad tries to quash dissents before beginning of Ramadan. Troops enter the village of Sarjeh, cutting electricity and water.


Egypt – Strained relations between activists and military rulers worsen after dozens of protesters are attacked during a rally in Cairo.

25 Jul Syria – The cabinet backs a draft law to allow rival political parties to the ruling Baath party for first time in decades.

Libya – Britain is prepared to agree to a political settlement that would see Gaddafi remain in Libya after relinquishing his hold on power.

27 Jul Libya – Britain confers diplomatic recognition on the Libyan rebels’ National Transitional Council, gives it 91 million in frozen oil funds and expels pro‑Gaddafi embassy staff.

28 Jul Libya – The rebels’ chief of staff, Abdel Fatah Younis, is killed.

1 Aug Egypt – The army violently retakes Tahrir square, firing into the air as tanks move in.

Libya – Rebels enter Zlitan after a weekend of heavy fighting.

2 Aug Syria – EU imposes sanctions on key regime figures and UN struggles to agree to condemn the violence.

8 Aug Syria – Saudi Arabia’s King Abdullah demands an end to the bloodshed in Syria and recalls his country’s ambassadors.

9 Aug Syria – Envoys from Turkey, India, Brazil and South Africa head to Damascus to press Assad to end the crackdown.

11 Aug Syria – Opposition forces say 257 have died in 11 days.

12 Aug Syria – Two minarets razed to the ground in Dayr az Zor.

14 Aug Libya – Rebels claim to be advancing on Tripoli on three fronts.

15 Aug Libya – Gaddafi urges his people to “liberate Libya” from NATO, in a speech broadcasted by state television.

18 Aug Syria – Human rights investigators list Assad officials who could be prosecuted by the international criminal court.


22 Aug Libya – The capital appears poised to fall as rebels enter Green square.

24 Aug Libya – Gaddafi flees as opposition fighters swarm into his fortified citadel.

26 Aug Libya – In its first Tripoli press conference, the National Transitional Council says its cabinet will be moving from Benghazi to the capital.

29 Aug Libya – Gaddafi’s wife and their three children cross the border unhindered raising questions about NTC’s control over central Libya.

30 Aug Syria – Officials say cutting € 3 billion annual lifeline and effectively halting all business between Syria and EU will be serious blow to regime.

1 Sep Libya – Search for members of Gaddafi family focuses on town of Bani Walid, 100 miles south‑east of Tripoli.

2 Sep Syria – EU governments ban imports of Syrian oil and extend sanctions to intensify pressure on Assad.

4 Sep Libya – Around 15 Libyans of pro‑Gaddafi convoy, including Mansour Dhao, the head of Gaddafi’s security brigades, flees to Niger.

7 Sep Syria – Up to 28 people reportedly killed across the country, as France accuses Assad’s regime of committing crimes against humanity.

8 Sep Libya – Gaddafi issues a defiant message from hiding in which he vows never to leave “the land of his ancestors”.

9 Sep Syria – Eight soldiers are executed in Damascus for refusal to fire on protesters.

11 Sep Libya – Muammar Gaddafi’s son Saadi is reported to have entered Niger.

12 Sep Syria – Russian President Dmitry Medvedev says that additional sanctions on Syria are “absolutely not needed”, as new UN figures show at least 2,600 people have been killed since anti‑government protests erupted in March.

15 Sep Libya – David Cameron and Nicolas Sarkozy meet new Libyan leaders.

16 Sep Libya – Rebel fighters are involved in heavy fighting in a final battle to capture Sirte.


Egypt – People return to Tahrir Square to rally against the military junta’s reactivation of Mubarak‑era emergency laws.

18 Sep Libya – NTC leaders fail to agree on interim cabinet as fighting continues.

21 Sep Syria – Obama condemns torture, detention and murder by the Syrian government and urges the UN Security Council to further sanction Assad’s regime.

22 Sep Libya/Tunisia – Al‑Baghdadi Ali al‑Mahmoudi, Gaddafi’s last prime minister, has been arrested in Tunisia.

25 Sep Libya – A mass grave containing 1,270 bodies has been discovered in Tripoli as government forces approach central Sirte.

27 Sep Egypt – The military regime announces the first parliamentary elections since Mubarak was ousted by opposition groups. Protesters fear remnants of the old regime will stay in power.

30 Sep Egypt – Thousands rally under the slogan “Reclaiming the Revolution” in cities across the country as frustration grows with the slow pace of reform.

Syria – Hillary Clinton speaks out after US ambassador Robert Ford’s convoy was attacked as he travelled to meet a leading opponent to the regime.

2 Oct Libya – Sirte residents queue to leave city during two‑day ceasefire.

Syria – Rebels unite to oust Assaf and push for democracy.

4 Oct Syria – Turkish prime minister Erdogan condemns Assad’s regime and imposes sanctions on Syria.

6 Oct Egypt – Supreme Council of the Armed Forces unveil plans that could see them retain power until 2013 as Israa Abdel Fatah, blogger and activist, has been mentioned Nobel Peace Prize candidate.

7 Oct Syria – Russian president breaks ranks with Assad for the first time since protests started.

9 Oct Egypt – At least 24 dead in the center of Cairo after a protest over an attack on a church erupted into worst violence since fall of Mubarak.


16 Oct Libya – The knocking down of Gaddafi’s Tripoli stronghold seen as erasing a symbol of repression.

17 Oct Libya – NTC troops raise flags of Libya’s new government after a six‑week siege, leaving only part of Sirte defended by loyalists.

19 Oct Libya/Syria – Libya’s interim government leads world in recognising Syrian opposition as a “legitimate authority” to rule the country.

20 Oct Libya – Cornered by government forces and pinned down by NATO airstrikes, Gaddafi is found alive and killed.

21 Oct Libya ‑ NTC officials in Tripoli agreed to open an investigation into the controversial circumstances surrounding Gaddafi’s death.

22 Oct Libya – Libyans queue outside refrigerated meat store to confirm that the dictator is really dead.

23 Oct Libya – At a ceremony in Benghazi, NTC Chairman Mustafa Abdul Jalil officially declared Libya to be “liberated” and the war to be over.

Tunisia – Polls open nine months after Tunisians first took the streets. The Islamist An‑Nahda party is expected to win the biggest share of the vote.

25 Oct Libya – Gaddafi’s burial alongside his son Mutassim brings to a close the controversy over the public displaying of his body.

Tunisia – Partial results suggest An‑Nahda has won 24 out of 57 assembly seats so far.

26 Oct Tunisia – Final results of Constituency Assembly elections: An‑Nahda 37.04% (89 seats), CPR 8.71% (29), Popular Petition 6.74% (26), Ettakatol 7.03% (20), PDP 3.94% (16).

27 Oct Libya – The NTC questions its earlier assertion that Gaddafi died in crossfire and pledges justice for anyone proven to have fired the lethal shot.

Tunisia – The Instance Supérieure Indépendante pour les Élections disqualifies the Petitions lists in six constituencies for financial irregularities, bringing down the number of seats to 19; ISIE’s decision triggers violent protests of Popular Petition supporters in Sidi Bouzid.


29 Oct Syria – Arab ministers send their strongest message yet calling for an end to civilian killings after latest shooting at post‑Friday prayer protests.

30 Oct Syria – Assad warns that intervention could lead to another Afghanistan as NATO officials says Libya‑like action lacks support.

31 Oct Libya – UN secretary general rules out intervention in Syria as he hails aerial campaign which destroyed much of Gaddafi’s military infrastructure as a “successful chapter” in alliance history.

1 Nov Syria – UN’s International Atomic Energy Agency (IAEA) identifies uranium enrichment plant design at Hasakah.

2 Nov Egypt – The generals announce a pardon for 334 prison inmates, following reaction to letter secretly written by activist Alaa Abd El Fattah from his cell.

3 Nov Egypt – Activists claim their revolution is under attack and appeal for solidarity from the worldwide Occupy Movement.

6 Nov Syria – Crackdown continues prompting urgent Arab League talks.

11 Nov Libya – Niger grants asylum to Saadi Gaddafi as refugee.

12 Nov Syria – The Arab League agrees to exclude Syria and impose sanctions over its failure to end the violent crackdown.

13 Nov Syria – Hundreds of thousands of supporters of the Assad regime protest against the Arab League decision, storming Saudi, Qatari, French and Turkish embassies as the regime demands an emergency Arab League meeting.

Egypt – Violence escalates as protests against the ruling military junta spreads beyond Cairo and Alexandria.

14 Nov Syria – Pressure mounts on an increasingly isolated Syrian President as King Abdullah says he “should go”.

15 Nov Syria – Human rights groups say that up to 140 people have been killed since The Arab League voted to suspend Syrian membership.


19 Nov Libya – Saif al‑Islam Gaddafi has been captured alive in Libya while attempting to flee to Niger.

Egypt – Security forces open fire on thousands of anti‑junta protesters in Tahrir Square leaving two dead and more than 600 injured.

20 Nov Libya – With the Abdullah al‑Senussi’s detention, captured in southern desert, all leading figures from Gaddafi regime have been killed, captured or driven into exile.

21 Nov Egypt – The interim government bows to growing pressure as violence leaves 33 dead and more than 2,000 injured.

22 Nov Tunisia – The constituent assembly, the first newly elected body to emerge from the Arab Spring, meets for the first time.

Libya – The international criminal court’s chief prosecutor says Saif al‑Islam could be tried in Libya rather than at The Hague.

23 Nov Egypt – After days of equivocal statement, US State department condemns Egypt’s military rulers.

24 Nov Egypt – Military rulers appoint Kamal Ganzouri as Prime Minister.

25 Nov Egypt – As a massive crowd protests in Tahrir Square, the US calls for civilian rule to immediately follow parliamentary elections.

27 Nov Syria – Assad’s decision to refuse access to observers leaves Syria facing stiff sanctions imposed by The Arab League.

28 Nov Egypt – Egyptians vote in record numbers in the country’s first free ballot for more than 80 years.

30 Nov Egypt – The Muslim Brotherhood’s Freedom and Justice Party looks on course to be the biggest winner after the first round of voting. Around 80 are injured in Tahrir Square after clashes brake out after polls closed.

Syria – Turkey freezes financial assets of those involved in the government crackdown.

1 Dec Egypt – Preliminary counts confirm a strong victory for the Brotherhood’s Freedom and Justice Party, but the announcement of election results is delayed.


Syria – The UN high commissioner for human rights says the death toll has reached more than 4,000.

2 Dec Syria – A series of large protests call for the international community to establish buffer zones to protect civilians.

5 Dec Syria – The Assad regime says it is willing to sign an Arab League protocol to send international observers into Syria but only on certain conditions.

Egypt – Egyptians go to the poll once more in the run‑off contests for parliamentary seats. No party attracted more than 50% in the previous week’s vote.

6 Dec Syria – The US ambassador, who was withdrawn from Damascus for his own safety, is retuning to Syria. Hillary Clinton meets Syrian opposition leaders.

Libya – The government vows to disarm Tripoli.7 Dec Syria – Assad attempts to distance himself from

the army claiming in an interview that documented cases of killings and torture, characterised by the UN as “crimes against humanity”, were carried out by individuals outside his control.

Egypt – Supreme Council of the Armed Forces says MPs will not have the final say over drafting the new constitution.

8 Dec Libya – The government gives the green light for British police to visit the country to conduct an investigation into the Lockerbie bombing and the assassination of PC Yvonne Fletcher.

9 Dec Syria – More than 5,000 dead since uprising began.13 Dec Libya – Activists demand transparency from NTC

and call for an interim government to make its membership and voting decision public.

17 Dec Egypt – Escalation of violence in the last two days, between security forces and protesters.

20 Dec Egypt – Thousands of Egyptian women demonstrated against abuses by military police.

23 Dec Syria ‑ Two car bombings in Damascus kill civilians and some soldiers, leaving 44 dead and 163 wounded.

5 Jan 2012 Syria ‑ Qatari Prime Minister Hamad bin Jassim al‑Thani criticizes the Arab League mission in Syria.


9 Jan Tunisia – According to the National Statistics Institute, the volume of Tunisian exports in 2011 compared with the previous year were up by 6.7%; France (30.7%) and Italy (21.6%) are Tunisia’s top customers.

10 Jan Syria – During a speech broadcasted by network Al Jazeera, President Assad has ruled out the possibility of his resignation.

Egypt – Final election of the people’s assembly round opened in nine governorates.

11 Jan Syria – French journalist Gilles Jacquier was killed in the rebel city of Homs, where he was making a reportage. In 2011, Jacquier won the Ilaria Alpi Prize for best international reportage on the Tunisian uprising.

19 Jan Egypt – Italian Foreign Minister Terzi in Cairo underlines that Italy strongly supports the transition.

Syria – NATO rules out military intervention.23 Jan Egypt – Inaugural session of the first post‑Mubarak

Egyptian People’s Assembly: Muslim Brotherhood’s Freedom and Justice Party and Salafis are the two groups accounting for the majority of seats.

Syria – EU foreign ministers approved new sanctions: it is the eleventh package of restrictive measures on the Syrian regime so far.

2. A review Of COuntry risK mOdels: sOme suGGestiOns

2.1 An Introduction to Country Risk

The concept of country risk is of major interest to those who trade with and invest in other countries. The concept however is an abstract one and tends to be defined and measured in different ways. Various public and private bodies and organisations specialised in estimating country risk, basing their analysis on an assortment of methodologies and variables. Generally speaking, despite these differences in approach and method, all Country Risk Analysis (CRA) shares a common goal, i.e. to provide lenders and investors with an assessment of the economic (but not only) condition of a particular country that is useful in guiding decisions in their role as capital providers on foreign markets. Such an objective can be reached in different ways, not all necessarily using quantitative methods.


The end result of many country risk analyses is often in the form of a report outlying the economic, political and social conditions of a particular country. Such narratives make comparisons between countries difficult unless they are prepared on the basis of a predefined structure (e.g. EIU or SACE Country Reports).

Quantitative Methods have the advantage of summarising the results of a country analysis in number or chart form; this is the case both in quantitative research using statistical methods and when data are used to construct descriptive indices.

Both methods enable not only comparison, but also the possibility of constructing ordinal and at times cardinal measures of country risk.

Inferential methods are based essentially on statistical/econometric approaches contained mostly in academic work. Such work, however, often focuses on methodological correctness rather than on the results generated. Four main methodologies can be distinguished.

Discriminant analysis: is a method used to find a linear combination of features in order to separate two or more classes of objects or events. In this case, our goal could be classifying countries into debt rescheduling and non‑rescheduling countries. Starting from a set of k explanatory variables, assumed to have multivariate normal

distribution, the discriminant function is

12


2. A REVIEW OF COUNTRY RISK MODELS: SOME SUGGESTIONS







Discriminant analysis: is a method used to find a linear combination of features in order to separate two or more classes of objects or events. In this case, our goal could be classifying countries into debt rescheduling and non-rescheduling countries. Starting from a set of k explanatory variables, assumed

to have multivariate normal distribution, the discriminant function is ii

k

iXBY

1

, i = 1,2 .......k. Bi’s

are to be estimated in order to maximize the ratio of the variance between the classes to the variance within the classes. A country is assigned to one or the other class looking at the proximity of its Y-value to the respective mean values of the two classes. The choice of the critical value for Y can be determined in order to minimize type I or type II error (meaning, respectively, incorrectly

12


2. A REVIEW OF COUNTRY RISK MODELS: SOME SUGGESTIONS







Discriminant analysis: is a method used to find a linear combination of features in order to separate two or more classes of objects or events. In this case, our goal could be classifying countries into debt rescheduling and non-rescheduling countries. Starting from a set of k explanatory variables, assumed

to have multivariate normal distribution, the discriminant function is ii

k

iXBY

1

, i = 1,2 .......k. Bi’s

are to be estimated in order to maximize the ratio of the variance between the classes to the variance within the classes. A country is assigned to one or the other class looking at the proximity of its Y-value to the respective mean values of the two classes. The choice of the critical value for Y can be determined in order to minimize type I or type II error (meaning, respectively, incorrectly

Bi’s are to be estimated in order to maximize the ratio of the

variance between the classes to the variance within the classes. A country is assigned to one or the other class looking at the proximity of its Y‑value to the respective mean values of the two classes. The choice of the critical value for Y can be determined in order to minimize type I or type II error (meaning, respectively, incorrectly classifying debt rescheduling countries as non‑rescheduling countries or incorrectly classifying non‑rescheduling countries as rescheduling countries) or a chosen combination of the two errors.

Principal components analysis: is a procedure to convert a set of observations of possibly correlated variables into a set of values of linearly uncorrelated variables known as principal components.


Their number is less than or equal to the number of original explanatory variables, Xi. Then the components are ordered in term of variance:

var(Z1) > var(Z

2) > ...... > var(Zk)

the first principal component is Z1, the one with the highest variance;

Z2 with the next highest variance is called the second principal

component, and so on. For example, in this case we can identify the debt rescheduling countries by looking at the coefficient of their two principal components.

Logit and Probit AnalysisLogit is a function based on the logistic distribution. It is defined in

the domain between 0 and 1, usually represented by probability values.

Probit model is very similar to the logit, with the same domain and range but the probit function is represented by a normal distribution, instead of a logistic distribution.

In both cases, we can assume as dependent variable the probability of debt rescheduling. Y

i takes the value of 1 if rescheduling takes place and 0 for non‑rescheduling case.

For Logit Model the functional form is

13

classifying debt rescheduling countries as non-rescheduling countries or incorrectly classifying non-rescheduling countries as rescheduling countries) or a chosen combination of the two errors.

Principal components analysis: is a procedure to convert a set of observations of possibly correlated variables into a set of values of linearly uncorrelated variables known as principal components. Their number is less than or equal to the number of original explanatory variables, Xi. Then the components are ordered in term of variance:

var(Z1) > var(Z2) > ...... > var(Zk)

the first principal component is Z1, the one with the highest variance; Z2 with the next highest variance is called the second principal component, and so on. For example, in this case we can identify the debt rescheduling countries by looking at the coefficient of their two principal components.

Logit and Probit Analysis

Logit is a function based on the logistic distribution. It is defined in the domain between 0 and 1, usually represented by probability values.


In both cases, we can assume as dependent variable the probability of debt rescheduling. Yi takes the value of 1 if rescheduling takes place and 0 for non-rescheduling case.


k

jijj

ii

X

PY

101

11

exp

)Pr(

i = 1, 2, 3, ......,n

For Probit Model the functional form is

dttXFZFPYiZk

jijjiii

2211

2

10 exp)()Pr(

i = 1, 2, 3, ......,n

Artificial Neural Network: ANNs try to simulate the brain’s ability to classify patterns or to make forecasts based on past experiences.

It is based on an interconnected group of nodes organized in three or more layers (see picture below).


13



var(Z1) > var(Z2) > ...... > var(Zk)







k

jijj

ii

X

PY

101

11

exp

)Pr(

i = 1, 2, 3, ......,n


dttXFZFPYiZk

jijjiii

2211

2

10 exp)()Pr(

i = 1, 2, 3, ......,n



13



var(Z1) > var(Z2) > ...... > var(Zk)







k

jijj

ii

X

PY

101

11

exp

)Pr(

i = 1, 2, 3, ......,n


dttXFZFPYiZk

jijjiii

2211

2

10 exp)()Pr(

i = 1, 2, 3, ......,n






The first one is the input layer and the final one is the output layer, connected by one or more intermediate hidden layers. In our case, in the input layer we put the explanatory variables of country risk and in the output layer we obtain the country risk rating.

14

The first one is the input layer and the final one is the output layer, connected by one or more intermediate hidden layers. In our case, the input layer we put the explanatory variables of country risk and in the output layer we obtain the country risk rating.

Input Layer Hidden Layer Output Layer

In other cases, bodies working in the area of CRA (not necessarily in universities, but also banks, rating agencies, think tanks, etc.) construct descriptive indices through data aggregation rather than data inference.

Also in these situations, upstream the analysis may contain an inferential procedure: as indices are based on past data, in order to define the structure of the categories being analysed (economy, politics, social development, etc.) and to assign weights to individual variables and the categories in question, statistical analysis can be used. Alternatively, data aggregation and calibration can be based on theoretical foundations.

The Institute for International Economics of the Chamber of Commerce of Genoa has dedicated considerable attention to CRA through two channels:

the setting up in 2008 of the Permanent Observatory on Southern Mediterranean economies; the publication in Economia Internazionale/International Economics of various contributions

on CRA, many of which part of a dedicated issue published in February 2009.

In fact, the CRA issue contained an extremely useful summary of the quantitative methods used credit risk assessment. In his overview (Country Risk Analysis: A Survey of Quantitative Methods), H.K. Nath classifies work in the field according to the methodology used, the dependent variable being studied, and the extensiveness of the sample (over both cross-section and time-series data). A summary of the groupings is shown below:

OutputLayer

Input Layer

Hidden Layer

In other cases, bodies working in the area of CRA (not necessarily in universities, but also banks, rating agencies, think tanks, etc.) construct descriptive indices through data aggregation rather than data inference.

Also in these situations, upstream the analysis may contain an inferential procedure: as indices are based on past data, in order to define the structure of the categories being analysed (economy, politics, social development, etc.) and to assign weights to individual variables and the categories in question, statistical analysis can be used. Alternatively, data aggregation and calibration can be based on theoretical foundations.

The Institute for International Economics of the Chamber of Commerce of Genoa has dedicated considerable attention to CRA through two channels:

Ó the setting up in 2008 of the Permanent Observatory on Southern Mediterranean Economies;

Ó the publication in Economia Internazionale/International Economics of various contributions on CRA, many of which part of a dedicated issue published in February 2009.


In fact, the CRA issue contained an extremely useful summary of the quantitative methods used in credit risk assessment. In his overview (Country Risk Analysis: A Survey of Quantitative Methods), H.K. Nath classifies work in the field according to the methodology used, the dependent variable being studied, and the extensiveness of the sample (over both cross‑section and time‑series data). A summary of the groupings is shown below:

tAble 1 ‑ Summary of Selected Empirical Studies

Quantitative Method

Study Dependent variable(s)

No. of independent

variables

No. of countries

Sample period

Discriminant Analysis

– Frank and Cline (1971) – Grinlos (1976) – Abassi and Taffler

(1982) – Cooper (1999) – Yim and Mitchell

(2005)

‑8

20

424

31

2664

9570

52

1960‑681961‑74

1967‑781982‑83

2002

Principal Component Analysis

– Dhonte (1975) ‑ 10 82 1959‑71

Logit Analysis

– Feder and Just (1977)

– Edwards (1984)

– Brewer and Rivoli (1990)

– Kutty (1990)

– Cosset and Roy (1991)– Oral et al. (1992)– Brewer and Rivoli

(1997)– Easton and Rockerbie

(1999)– Cooper (1999)

– Oetzel et al. (2001)

– Yim and Mitchell (2005)

Dummy variable for defaultSpread over LIBORAgency risk rating

Dummy variable for defaultAgency risk ratingAgency risk ratingDummy variable for reschedulingDummy variable for defaultDummy variable for reschedulingDummy variables for 10 & 40% 1‑month drop, and 10% 1‑month gain in currency Agency risk rating

9

146

1299

14

6

4

1131

55

1930

797170

80

24

70

1752

1965‑72

1976‑801967‑86

1964‑821987

1982‑87

1980‑90

1971‑92

1982‑83

1979‑982002

G‑LOGIT – Oral et al. (1992) Agency risk rating 9 70 1982‑87


Quantitative Method

Study Dependent variable(s)

No. of independent

variables

No. of countries

Sample period

Probit Analysis

– Kharas (1984)

– Rahnama‑Moghadam et al. (1991)

– Balkan (1992)

– Hernandez‑Trillo (1995)

– de Haan et al. (1997)

– Easton and Rockerbie (1999)

– Cooper (1999)


Dummy variable for reschedulingDummy variable for rescheduling

Dummy variable for reschedulingDummy variable for defaultDummy variable for reschedulingDummy variable for defaultDummy variable for reschedulingAgency risk rating

4

4

13

7

24

6

431

43

16

33

33

65

24

7052

1965‑76

1980‑87

1971‑84

1970‑88

1984‑93

1971‑92

1982‑832002

ANN

− Chattopadhyay (1997)

− Cooper (1999)

− Yim and Mitchell (2005)

Change in the net position of US direct investmentDummy variable for reschedulingAgency risk rating

3

431

‑

7052

1988

1982‑832002

Hybrid Neural Networks


Agency risk rating 31 52 2002

Multiple Regression

– Lee (1993) – Cantor and Packer

(1996)

Agency risk ratingAgency risk ratings and spread

9

8

29

49

1986

1995

We then focus on two different papers published in Economia Internazionale/International Economics. According to Nath’s classification of Country Risk Analysis methods, the first can be classified as a Quantitative approach and the latter as a Checklist method.

2.2 A Quantitative/Econometric Method: Ghosh and Li (2009)

In this analysis, Ghosh and Li seek to determine the extent of the effects a potential shock may produce on a group of macroeconomic


variables. Using the World Bank’s World Development Indicators, the authors examine the following eight variables:

Capital Formation as % of GDP;

External Debt as % of GDP:

Current Account Balance as % of GDP;

GDP Growth Rate (%);

Inflation Rate (%);

Labor Force Participation Rate (%);

Real Exchange Rate (REER, index 1995 = 100);

Unemployment Rate (%).

Next, eight‑variable vector autoregression (VAR) models are constructed; VAR models are based on simultaneous time series equations, where each variable is explained through an equation based on its own lags and the lags of all the other variables in the model. The following is a VAR (1), the simplest example of VAR model with two variables and a one‑lag period:

18

tYttt

tXttt

XYYYXX

,

,

1211

1211

This work estimates VAR models with two lags: it is assumed therefore that every value of a variable is a function of the values of the variable itself and of other endogenous variables recorded in the two previous periods.

After having generated the model, we move to the second part of the analysis. Of a dynamic type, the analysis assumes the existence of shocks to the system. Operatively, each shock consists in a variation of the error term of each equation of the model equivalent to one standard deviation.

The object is to analyse how long variables take to absorb the effects of a shock.

The effects of the variation will be immediate only on the variable that has undergone a shock whilst, depending on the definition of the VAR model, the response of the other variables will only occur in the successive period.

The simple VAR (1) model shown above can be used as an example.

A shock on tX , leads to an immediate variation in the value of X, whilst the value of Y will vary only

in the successive period as a result of the change to tX . This however holds only in the case where tX , and tY , are uncorrelated. In the not infrequent case where there is a correlation between

residuals, the problems arises of attributing common component effects. Different solutions to this problem exist: Ghosh and Li use the Cholesky method, which consists in the transformation of the covariance matrix so that is diagonal, i.e. covariances are equal to zero. In this way, the common component is attributed entirely to the variable appearing first in the VAR equation system. It follows that impulse response functions are dependant on the order assigned to equations. Consequently, in order to make the analysis as realistic as possible and to enable comparisons amongst countries, the same order of choice has to be maintained for all countries.

Impulse response functions may stabilise, fluctuate cyclically or have an explosive trend. Countries with impulse response functions that stabilise more quickly are considered less risky.

On the basis of this criterion, MENA countries are ordered in the following way, from least to most risky: Algeria, Syria, Malta, Israel, Saudi Arabia, Tunisia, Oman, Jordan, UAE and Bahrain.

2.3 A Checklist Method: the CIFP Project of Carleton University

The August 2009 number of International Economics/Economia Internazionale contained a contribution by Carment, Samy and Prest based on methodology developed by the CIFP (Country Indicators for Foreign Policy) project of the Carleton University.

The authors presented a country risk index made up of 83 indicators coming from a variety of sources (the principal one being the World Development Indicators). On the basis of the performance

This work estimates VAR models with two lags: it is assumed therefore that every value of a variable is a function of the values of the variable itself and of other endogenous variables recorded in the two previous periods.

After having generated the model, we move to the second part of the analysis. Of a dynamic type, the analysis assumes the existence of shocks to the system. Operatively, each shock consists in a variation of the error term of each equation of the model equivalent to one standard deviation.

The object is to analyse how long variables take to absorb the effects of a shock.

The effects of the variation will be immediate only on the variable that has undergone a shock whilst, depending on the definition of the VAR model, the response of the other variables will only occur in the successive period.


The simple VAR (1) model shown above can be used as an example.

A shock on εx,t leads to an immediate variation in the value of

X, whilst the value of Y will vary only in the successive period as a result of the change to X

t. This however holds only in the case where ε

x,t and εy,t are uncorrelated. In the not infrequent case

where there is a correlation between residuals, the problems arises of attributing common component effects. Different solutions to this problem exist: Ghosh and Li use the Cholesky method, which consists in the transformation of the covariance matrix so that is diagonal, i.e. covariances are equal to zero. In this way, the common component is attributed entirely to the variable appearing first in the VAR equation system. It follows that impulse response functions are dependant on the order assigned to equations. Consequently, in order to make the analysis as realistic as possible and to enable comparisons amongst countries, the same order of choice has to be maintained for all countries.

Impulse response functions may stabilise, fluctuate cyclically or have an explosive trend. Countries with impulse response functions that stabilise more quickly are considered less risky.

On the basis of this criterion, MENA countries are ordered in the following way, from least to most risky: Algeria, Syria, Malta, Israel, Saudi Arabia, Tunisia, Oman, Jordan, UAE and Bahrain.

2.3 A Checklist Method: the CIFP Project of Carleton University

The August 2009 number of International Economics/Economia Internazionale contained a contribution by Carment, Samy and Prest based on methodology developed by the CIFP (Country Indicators for Foreign Policy) project of the Carleton University.

The authors presented a country risk index made up of 83 indicators coming from a variety of sources (the principal one being the World Development Indicators). On the basis of the performance of a country with regards to others in a particular year, each indicator is given a score that goes from 1 (best country) to 9 (worst country). The final score of each indicator will represent the average performance over the last five years. The values of these indicators


are subdivided into six different categories, each with identical weight; as a result, the weight of each single indicator depends on the number of indicators included in that category.

These data are then reprocessed within another analytical structure called ALC (after the initials of the three properties Authority, Legitimacy and Capacity). The underpinning idea of the index is, in fact, that a state has to have these three properties: authority indicates the ability to represent the law and to enable the population to live in a stable and secure environment; legitimacy is the ability of a state to generate acceptance, support and loyalty on the part of citizens by means of voluntary and reciprocal commitment; capacity is the ability of a state to mobilise public resources for useful and productive ends. With regards to MENA countries, the index produced the results shown in Table 2.

2.4 Critical Points of Country Risk Analysis

As regards the work of Ghosh and Li (see paragraph 2.2), it benefits from a dynamic‑type based methodology that allows it, through the use of statistical simulation models, to verify trends in main economic variables in the event of an exogenous shock to the model. However, the end result does not take into account the likelihood of an exogenous shock occurring in the system. In brief, no attention is given to the second part to what is the classic formulation in risk assessment given by the product between the effects connected to the occurrence of a certain event and the likelihood of its occurring.

R(e)=E(e)*P(e)

Moreover, as VAR models are constructed on the basis of past values registered by the variables under analysis, also the simulation result may be affected by the duration and extent of the shock.

As far as Mediterranean South coast countries are concerned, we can regard the onset of the Arab Spring as a potential exogenous shock with respect to the model proposed by Ghosh and Li.

Of note is the fact that Syria, on the basis of an analysis of impulse response functions, results as one of the countries in the area best‑equipped to absorb shocks. The point is that currently the


tA

bl

e 2

‑ F

ragi

lity

Inde

x fo

r M

EN

A C

ount

ries

Cou

ntry

Fra

gilit

y In

dex

AL

C S

core

sC

ross

‑cu

ttin

g T

hem

eIn

dica

tor

Clu

ster

s

AL

CG

ende

rG

over

nanc

eE

cono

mic

sS

ecur

ity

and

Cri

me

Hum

an

Dev

elop

men

tD

emog

raph

yE

nvir

onm

ent

Alg

eria

5.88

6.25

6.90

5.05

6.41

6.98

6.00

7.43

4.97

3.63

5.00

Bah

rain

4.96

4.13

7.33

4.48

5.80

7.42

3.85

4.44

3.75

5.67

9.00

Djib

outi

6.19

4.80

6.98

7.06

8.40

6.81

6.61

4.45

7.27

5.20

6.67

Egy

pt5.

785.

347.

325.

347.

087.

315.

626.

554.

794.

835.

67

Iran

6.25

7.00

6.96

5.38

6.77

7.63

5.99

8.51

5.23

5.35

5.20

Iraq

6.94

7.52

7.50

6.15

6.42

7.60

7.80

9.38

5.53

6.30

4.33

Isra

el4.

716.

394.

523.

494.

513.

994.

317.

492.

795.

036.

00

Jord

an5.

214.

706.

794.

897.

216.

505.

404.

954.

135.

006.

67

Kuw

ait

5.31

5.23

6.86

4.76

6.16

7.52

5.04

4.63

4.21

5.70

6.33

Leb

anon

5.74

6.35

7.29

4.62

6.90

7.78

5.58

7.34

3.61

5.15

7.07

Lib

ya5.

304.

807.

154.

865.

407.

076.

464.

704.

514.

404.

73

Mal

ta3.

332.

963.

583.

494.

563.

464.

871.

472.

263.

009.

00

Mor

occo

5.72

4.94

7.17

5.64

7.93

6.62

6.08

4.93

5.91

4.65

5.00

Om

an5.

314.

476.

485.

417.

805.

794.

953.

605.

576.

316.

67


Cou

ntry

Fra

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C S

core

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553.

926.

144.

263.

355.

964.

923.

643.

044.

459.

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a5.

595.

797.

474.

677.

928.

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726.

884.

714.

736.

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905.

216.

975.

956.

406.

136.

236.

475.

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534.

67

Tu

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613.

726.

114.

605.

385.

505.

113.

474.

823.

285.

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ted

Ara

b E

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ates

4.61

3.81

6.63

4.17

5.17

6.65

3.48

3.88

3.81

5.18

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t B

ank

and

Gaz

a7.

416.

6910

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7.50

8.30

6.85

9.08

8.16

4.78

7.00

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Yem

en7.

276.

598.

327.

318.

938.

006.

567.

447.

207.

638.

33

Ave

rage

ME

NA

5.55

5.27

6.90

5.19

6.51

6.65

5.65

5.70

4.68

5.14

6.48

Ave

rage

ME

DA

FR

5.46

5.01

6.93

5.10

6.44

6.70

5.85

5.42

5.00

4.16

5.08

Ave

rage

AL

L5.

455.

105.

875.

515.

915.

905.

804.

875.

305.

294.

94

Ave

rage

AL

L (

EX

CL

O

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D)

5.87

5.37

6.43

5.99

6.45

6.37

6.19

5.22

5.84

5.69

5.15

5.88

6.25

6.90

5.05

6.41

6.98

6.00

7.43

4.97

3.63

5.00

tA

bl

e 2

- c

onti

nued


phase of shocks inside the country cannot be considered over and that forecasts about future developments are anything but easy to make.

More generally, an analysis of the list of political and social variables included in CRA studies reveals how numerous these variables are:

• Political instability indicator (number of political strikes, riots, demonstrations, assassinations, coups d’etats, coup attempts)

• Lagged value of political risk

• Number of changes in the head of government

• Number of changes in the governing group

• Political rights scores

• Armed conflict scores

• Democracy

• Political instability

• High political violence

• Low political violence

• Assassinations

• Government crises

• Demonstrations

• Guerilla warfare

• Purges

• Revolutions

• Riots

• Strikes

• Balkan’s PI

• Political protest

• Successful and unsuccessful irregular executive transfer

On this point, two main problems emerge:

• the first concerns the difficulty in formalising some of the variables (e.g. democracy or corruption levels);

• the second relates more specifically to MENA countries and is connected to the appropriateness in using variable values in countries which for almost forty years were characterised by considerable political stability; this has clearly led to an


underestimation of the importance of risks deriving from social problems with assumptions being made on the basis of adaptive expectations that stability would continue.

We believe that the fundamental features of the Arab Spring need to be addressed in order to understand which variables must be included in any realistic analysis of the countries in the area.

A clear case in point is the absence of food prices in CRA models. Indeed, this variable does not appear amongst the 122 variables summarised by Nath and used in the many models he observed. Such models in fact synthesise inflation through the use of consumer price indices. However, an analysis of the causes of the uprisings shows clearly how this variable (food prices) ought to have been taken into account along with youth unemployment rates and democracy and corruption levels.

Consequently, as part of our objective to constantly improve the predictive capacities of future analyses, the Permanent Observatory on Southern Mediterranean economies will focus greater attention on the specificities of the area as well as on the formalisation of qualitative variables.

3. summAry And COnClusiOns

The North African area has since 2001 recorded extremely high growth rates, almost three times those recorded in Europe.

During the period 2008‑2010 the area was substantially unaffected by the crisis, whereas Europe saw falls in its GDP by as much as 5%.

Italy is a key trading partner for these countries, being in the top five for all of them both for imports and exports; also as regards foreign direct investments, Italy is a major player in the area.

For these reasons Italy is clearly concerned about the current phase of political instability in the Mediterranean area.

If the outcome of the Arab Spring were to lead to a phase of democracy, then economic growth would likely return to the levels


recorded in recent years. If, however, new dictatorial regimes or Islamic fundamentalism were to prevail, then the process of economic growth could be much slower.

Here lies the need to monitor not only growth, but also political developments (as Professor Abdolmohammadi points out in his contribution) and to encourage operational support for those firms prepared to exploit the business opportunities present without being negatively affected by political risks (a question addressed by Iginia Colagrossi of the Ministry of Economic Development).

Clearly, our forecasts take into account the current uncertainty in the area. We firstly describe the basic scenario in each country and make our forecasts accordingly. A country‑by‑country analysis follows.

TunisiaInternational observers believe that the moderate Islamist party

En-nahda, which won elections on 23rd October, can initiate a process of democratisation and at the same time make decisive steps towards economic reform in part started by Ben Ali.

On the basis of these developments we expect: – En-nahda to confirm its moderate policy approach; – possible renewal of protests and public unrest, but without

significant political upheavals; – economic growth in the eurozone for the next two years to be

between 1 and 2% annually; – recovery, albeit slow, in the tourist sector.

Consequently, we forecast an average rise in GDP for the years 2012‑13 of 4.3% and an increase in imports of 3.3%.

EgyptThe first elections since the fall of Mubarak are due to be held

shortly, including those on the basis of a complex system designed by the Supreme Council of the Armed Forces. Subsequently, Constitutional reforms are planned to be the object of a referendum after which Presidential elections will follow. Renewed protests


in Tahir Square may be used by the authorities as a reason for a postponement of even cancellation of the electoral process.

The expected scenario in the country is as follows:

– the transition period will continue to last for many months, but with the election of a new government a slow process of economic reforms will get underway;

– growth in world GDP will be around 3% in 2012‑13; – the average price of oil for 2012 will around USD 110 per barrel.

On the basis of these assumptions, we forecast an annual rise in GDP for the period 2011/12‑2012/13 (the Egyptian tax year starts on 1st July and ends on 30th June) of 4.1% and an increase in imports of 9.1% annually.

AlgeriaAlthough the protest movement associated with the Arab Spring

reached the country, President Bouteflika remains in power. There is however considerable uncertainty regarding his health.

The key features for the country are:

– public protests will continue without major politically disruptive effects;

– The US economy, Algeria’s principal economic partner, will grow in 2012 by 1.8%;

– the average price of oil for 2012 will be around USD 110 per barrel.

On this basis, real GDP is forecast to rise by 4.5% annually, whilst imports will increase by 3.8%.

MoroccoUnlike other countries in the area, Morocco was comparatively

unaffected by the Arab Spring and its aftermath.

The probable scenario is:

– King Mohammed VI will remain firmly in power; – the political situation in the western Sahara will continue to be

stable;


– agricultural output will stay at average levels, but up on those recorded in 2010;

– economic growth in the eurozone for the next two years will be between 1 and 2% annually.

Consequently, we expect Morocco’s real GDP to grow by around 4.5% annually over the next two years, with similar growth (4.8%) forecast for imports.

LibyaUncertainty reigns due to the scarcity of information regarding

what is really happening in the country following the recent fall of the Gaddafi regime.

With these constraints in mind, we nevertheless expect:

– the democratisation process to be initiated, which foresees a new Constitution and elections before the end of 2012;

– business conditions in the country to remain uncertain until then;

– oil infrastructures to be fully repaired within 12 months; – the price of oil in 2012 to stay at around USD 110 per barrel; – real GDP for 2011 to have fallen by as much as 50% over levels

recorded in 2010.

We forecast therefore that the upturn in Libyan GDP for the years 2012‑2013 will bring real GDP back to levels recorded in 2010.


APPENDIX

1. Population Composition

inhabitants

(mln)

Annual %

changePopulation composition

Egypt 81.5 1,82% 0‑14: 32,5%; 65 +: 4,5%

Algeria 34.4 1,49% 0‑14: 27,8%; 65 +: 4,6%

Morocco 31.2 1,19% 0‑14: 28,8%; 65 +: 5,3%

Tunisia 10.3 0,98% 0‑14: 23,7%; 65 +: 6,7%

Libya 6.3 1,93% 0‑14: 30,2%; 65 +: 4,1%

Euro Area

(16 countries)328.6 0,46% 0‑14: 15,5%; 65 +: 17,9%

2. SWOT Analysis


4. Ease of Doing Business: Historical Ranking from 2006

3. Human Development Index

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6. Ease of Doing Business: Egypt

5. Ease of Doing Business: Algeria

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7. Ease of Doing Business: Morocco

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8. Ease of Doing Business: Tunisia


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9. Corruption Perceptions Index (CPI): Ease of Doing Business – Historical Ranking from 2006

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9. Corruption Perceptions Index (CPI): Ease of Doing Business – Historical Ranking from 2006

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