The Arab Spring has come to affect the psychology of
cross-border traders and investors more generally, as the idea
of radical political change is now in the back of the minds of
many who do business in countries that have not been affected by
the Spring. As has been repeatedly demonstrated this year,
radical political change can erupt without warning.
Gross Domestic Product
Businesses in Egypt, Libya, Syria,
Tunisia, and Yemen have had to adjust to a harsh, new, and
costly reality. The International Monetary Fund estimated in
October 2011 that the Spring countries had collectively endured
$56 billion in losses, with $21 billion having been eroded from
gross domestic product (GDP) and $35 billion lost as a result
evaporating income and rising costs.
Libya was the worst
affected, with a staggering loss of 29 percent of GDP. The
conflict in Libya had cost Tunisia up to $2 billion in lost
trade and tourism revenues as of July of this year,
according to Tunisia's central bank governor. Libyan trade
accounted for an estimated 5.5 percent of GDP in 2009. Since
January, Tunisia's overall tourism business has
plummeted by more than 40 percent. Even though Tunisia has
now held elections, the lingering uncertainty in Libya and Egypt
will surely continue to negatively impact the Tunisian economy.
The knock-on effect is undoubtedly similarly painful in a
variety of other countries in the region and beyond.
Islamic Economic Systems
The fact that Islamists are in
the process of seizing power in Egypt, Libya, and Tunisia does
not make life any easier for businesses there, nor inspire much
confidence among foreign traders, investors, and lenders. It
also raises questions about whether business life will ever be
the same in any of these countries.
Some formerly radical
political entities, such as Egypt's Muslim Brotherhood, have
already begun to try to change their image inside and outside
the country—even before it has assumed power—in anticipation of
assuming power next year. Now, the Brotherhood would like the
world to know that it supports a free market economy, but the
new government's aspirations to be seen as promoting social
justice will constrain the profit motive.
The Islamic economic
system is not based on price as the method of distribution of
goods, but rather on how to distribute benefits to all citizens.
It is the idea of potentially blending capitalism with sharia
law in countries that did not do so previously that is perhaps
most unsettling for Western businesses, as the manner in which
the two shall interact cannot be known in advance.
Role of the
Also unnerving is the question of what future
role the military will play in these countries. In Egypt, for
example, the Egyptian military invested heavily in the economy
in the 1960s and 1970s and is now estimated to own up to 40
percent of the economy. The military wants a peaceful transition
of power because it is focused on maintaining its own power and
prolonging its income. To the extent that whatever comes to rule
Egypt does not interfere with the military's ability to operate
as it has for decades, it probably doesn't matter all that much
to the country's current military's leaders.
An important consideration—which no one can know in advance—is
what comes next. We are in uncharted waters based on the sheer
scope and scale of the political change that has occurred this
year in MENA, but also because of the ongoing Western fiscal
crisis and the West's inability to effectively influence the
course of events in the region. It is reasonable to assume that
instability and uncertainty will reign throughout the region for
at least the next 1–3 years, but the stability that was taken
for granted in the region will perhaps never return. And, as has
been demonstrated in Libya, future political change in MENA
should not be presumed to be peaceful and orderly.
does that leave businesses that simply want to trade, invest, or
lend in these countries? There can still of course be quality
transactions in difficult environments—the trick is to be able
to identify them and to be able to protect oneself through the
use of credit and political risk guarantees and insurance. The
Spring has also affected businesses' ability to do so. The
underwriting process has become more conservative, insurance
capacity more limited, and general appetite curtailed, but
underwriters can still tell a good deal from a bad one. The
challenge—for businesses of all types—will be to be able to
determine whether it is even worth attempting to engage in
business in countries undergoing fundamental political change.
is CEO of Country Risk Solutions, a cross-border risk management
firm based in Connecticut (USA), and author of the forthcoming
"Managing Country Risk". Read his full