Growth in the Middle East and North Africa (MENA) is revised downward to 2.6 % in 2015 and the short term prospects remain “cautiously pessimistic”, according to the latest issue of the Quarterly Economic Brief for MENA (QEB). The report examines the different ways in which civil wars affect the economies of the region, including the important channel of forced displacement, which has become a crisis. It also explores how economic fortunes will turn around if there is peace.
ECONOMIC CONSEQUENCES OF THE WARS
Restoring Libya’s infrastructure will cost an estimated $200 billion over the next ten years. The damage to the capital stock in Syria as of mid-2014 is estimated between $70-80 billion. Syria’s neighboring countries (Turkey, Lebanon, Jordan, Iraq, and Egypt) have borne the brunt of the economic impact of the war. The cost to the five countries is close to $35 billion in output, measured in 2007 prices, equivalent to Syria’s GDP in 2007.
A preliminary World Bank-led assessment of damage in six cities in Syria (Aleppo, Dar'a, Hama, Homs, Idlib, and Latakia), showed an estimate of $3.6-4.5 billion as of end 2014. As of end of 2014, damage to the housing sector in Syria accounted for more than 65 percent; restoring the energy sector in the six cities will require between $ 648 and $791 million; damages to the health sector infrastructure was estimated to be between $203 and $248 million; damages to education sector infrastructure was estimated to be between $101 and $123 million.
Continued conflict and violence have reversed years of educational attainments in Syria, Yemen, Iraq and Libya and created inequality in educational opportunities. More than half (50.8%) of all school-age children in Syria were prevented from attending school during 2014- 2015. In Yemen, the number of poor people has increased from 12 million prior to war to more than 20 million people--80 % of population after the war.
Countries bordering conflict zones (Turkey, Lebanon, Jordan, Egypt), many of them already in fragile situations, are facing tremendous budgetary pressure. World Bank estimates that the influx of more than 630,000 Syrian refugees have cost Jordan over US $2.5 billion a year. This amounts to 6% of GDP and one-fourth of government’s annual revenues.
ECONOMIC EFFECTS OF THE PEACE
Can the economic damage from the civil wars be reversed?
An end to the civil wars in MENA will improve macroeconomic indicators through restoring security, increase in investment, and reconstruction activity. Social indicators will also improve as public resources that were used for military expenses could be shifted to education and health. But the pace and pattern of economic recovery in the short term is typically not smooth, as post-conflict countries inherit a weak economy, damaged physical, human and social capital, widespread poverty and high unemployment particularly among youth.
A peace settlement in Syria, Iraq, Libya and Yemen could lead to a swift rebound in oil output and exports allowing them to increase fiscal space, improve current account imbalances, increase foreign reserves, and boost economic growth in the medium term.
Being the least democratic region in the world, MENA could benefit from transitioning peacefully to democracy. According to the report, if transitions in MENA countries occurred in 2015, the growth rate of per capita GDP would reach 7.78 percent in 2020 compared to 3.3% in the absence of a transition to democracy.