Economic Effects of War and Peace in the Middle East and North Africa

February 3, 2016

WASHINGTON February 4, 2016— The World Bank’s latest Quarterly Economic Brief for MENA has revised estimates of economic growth in MENA, at 2.6 percent in 2015, falling short of expectations from the 2.8 percent predicted in October. Being constrained by war, terrorism and to some extent cheap oil, short term growth prospects remain “cautiously pessimistic”. The report examines the different ways in which civil wars are affecting 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.

Five years of war in Syria and spillovers to the neighboring countries (Turkey, Lebanon, Jordan, Iraq, and Egypt) have cost close to an estimated USD 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—over seven sectors---- housing, health, education, energy, water and sanitation, transport and agriculture--found an estimate of $3.6-4.5 billion as of end 2014.  Estimates show that restoring Libya’s infrastructure will cost an estimated $200 billion over the next ten years.

“Not only have the civil wars caused untold damage to human and physical capital, but they have created one of the biggest forced displacement crises since World War II,” said Shanta Devarajan, World Bank Chief Economist for the Middle East and North Africa region. “Unemployment is high among refugees, especially women and those who do work often work in the informal sector with no protection. About 92 percent of Syrian refugees in Lebanon have no work contract and more than half of them work on a seasonal, weekly or daily basis at low wages.”

Continued conflict and violence have reversed years of educational attainments in Syria, Yemen, Iraq and Libya. More than half (50.8 percent) 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 the war to more than 20 million people--80 percent of population--after the war.

Countries bordering conflict zones (Turkey, Lebanon, Jordan, Egypt), many of them already constrained economically, are facing tremendous budgetary pressure. The World Bank estimates that the influx of more than 630,000 Syrian refugees have cost Jordan over USD 2.5 billion a year. This amounts to 6 percent of GDP and one-fourth of government’s annual revenues.

“A peace settlement in Syria, Iraq, Libya and Yemen could lead to a swift rebound in oil output allowing them to increase fiscal space, improve current account balances and boost economic growth in the medium term with positive spillovers to the neighboring countries,” said Lili Mottaghi, World Bank MENA Economist and the author of the report.

In the event that conflicts subside in the region, a peaceful transition to democracy will increase economic growth by encouraging investment, schooling, economic reforms, public-good provision, and reducing social unrest. The World Bank estimates that if MENA countries, which are the least democratic in the world, are able to transition to full-fledged democracies, average GDP growth, currently expected to be about 3.3 percent, will reach 7.8 percent in five years. 

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