Economic Outlook: North African uprising impacts

The economic and construction market outlooks for Northern Africa have plunged since the tumult of the Arab spring. The greatest casualty has been Libya, with Tunisia and Egypt also directly affected. However, the uncertainty induced by the revolts has impacted the entire region.

To put this into perspective, IHS Global Insight's expectation for GDP growth in Tunisia and Egypt for this year had been +4.6% and +5.5% respectively. The expectation now is for a contraction of -2.5% in Tunisia and growth of +2.6% in Egypt, and the outlook for Egypt may be reduced further given the renewed protests against military rule.

But it is not all bad. The crisis has heightened fears over oil supplies, propping prices up even as developed economies falter and are likely to experience reduced demand. Oil producers in the region that have avoided trouble now have funds available for investment. Indeed, Algeria, Morocco and others have started economic development projects as a pre-emptive step to placate their people, and these packages include new residential construction and infrastructure investments.

Egypt impact

Egypt is the largest economy in the region, and it has ground to a halt since the protests began on January 25. IHS Global Insight expects growth to continue to falter as the interim government will avoid long term decision making in general.

Fortunately, activity at the Suez Canal has not been impacted by the crisis which would have had an even bigger impact on government revenues, while construction has held up well so far, as the US$ 2.1 billion economic stimulus package passed in early 2010 continues to fund road and water treatment projects.
Meanwhile Tunisia's economy has been particularly hard hit with economic losses estimated in the billions of dollars. Manufacturing and tourist activities have been suffered, and the political uncertainties associated with drawing a new constitution suggest a continued slump for these sectors.

Authorities have attempted to counter the social unrest and resulting economic downturn by boosting fiscal spending on social support measures and public infrastructure projects. However, Tunisia has limited room for prolonged stimulus measures, and will require foreign aid and support to recover.

The G8 has pledged financial support for Tunisia, but aid may be slow to flow into the country until the new political landscape becomes clearer.

However, violence and turmoil in neighboring Libya has sent a flood of refugees over the shared border into Tunisia and further damaged Tunisia's image for tourism. Coupled with signs of slowing global growth, the economy is expected to bounce back only modestly in 2012.

But the medium term is bright. As the aftershocks of political unrest subside, increased competitiveness, expansionary fiscal policy, robust performance in the transport and telecommunications sector, and rebounding European economies will lift economic growth. In fact, Tunisia remains one of the most competitive Arab and African economies in light of the country's continued investment in human capital and grand-scale institutional reforms.

The outlook in the near term is brighter for Algeria. The country has pursued a fiscally expansionary path since 2001 to address chronic unemployment that still stands at 10%. The implementation of a US$ 286 billion economic development plan over 2010-14 will benefit construction and utilities as government spending is channeled into upgrading infrastructure and providing housing. To put the spending in context, the package is equal to 181% of 2010 GDP.

A forecast of high oil prices and eventual global economic recovery also bodes well for Algeria as they should lead to robust investment, domestic demand, government consumption, merchandise exports and hydrocarbon production. The risk to the outlook is the government's recent decision to tighten the rules governing foreign investment, which could restrict growth in the construction and energy sectors.

While Morocco has no doubt nervously observed the regional turmoil, it has not experienced any severe social unrest. The popularity of King Mohammed VI and the political and socioeconomic reforms he has implemented in his 12 years in power have so far limited the size and scope of protests around the country. Even so, the turbulence has dampened tourist activity, which similar to Egypt and Tunisia, is a key foreign-exchange earner and accounts for about 8% of the Moroccan economy.

Morocco is hurt, not helped, by strong oil and commodity prices, as it is dependent on imports to satisfy domestic demand.

Infrastructure and housing projects will also bolster activity in the construction sector, particularly as the government pushes through spending plans to address social tensions, such as lack of affordable housing and high unemployment. A particular focus of investment will also be increasing the capacity of the tourism sector.

Uncertainty

Not only is construction information difficult to find for many countries in North Africa, even investment spending data is scarce - GDP is the best measure of growth. By this standard the region was beginning to recover from the global recession by 2010, but that has been more than undone for many countries by the current unrest. While the impact on Libya dwarfs the other countries, it is apparent that some recovery is expected in 2012 with a better outlook in 2013 as uncertainties diminish and developed economies strengthen.

While the uncertainty around the forecast for this region is very high in this region, the expectation is that 2012 will bring some return to normality. Although this will lead to construction spending growth in Egypt and Tunisia, it will not be enough to offset 2011 losses in all cases.

It will be 2013 before construction markets return to the status quo prior to the global recession and social unrest.