Just when North Africa thought it had hit bottom and driven away any and all risk-adverse investors, the region is set to suffer as yet more investors flock to safety.
Investors in Europe, that is, now fleeing for safe havens and driving down the growth prospects of north Africa’s key trading and tourism partner.
A global slump would hurt most Arab nations, including the Gulf states whose fates rise and fall with the price of oil.
But Tunisia, Morocco and Egypt are already weak and very exposed to an increasingly troubled Europe.
Some financial models suggest that a 1 per cent change in EU real GDP leads to a 0.6 per cent change in Tunisia, which sends nearly 75 per cent of its exports to the European Union, writes Raza Agha, an analyst with Royal Bank of Scotland, in a recent report.
The countries’ current accounts would be hit particularly hard by a slump in Europe, which would come when north Africa’s budget deficits and plummeting foreign investment are already problematic, according to Agha.
Not just the region’s exports but also its tourism industry are hitched to Europe’s fortunes. Francophone Tunisia and Morocco are particular draws for French tourists, and even in Egypt, 76 per cent of visitors in 2009 came from the EU.
Tourism plummeted during the revolutions, and the continued loss of tourists means the more loss of hard currency – tourism is (or, rather, was in 2010) the source of 10 to 12 per cent of current account receipts in Tunisia, for example.
Even once violence in Tunis and Cairo subsides (and it’s been getting worse in Cairo recently), financial stresses at home could mean European tourists carry 0n staying away.
grounded the EasyJet flights shuttling from Europe’s less-convenient airports to Sharm El-Sheikh and Marrakech.
There are other ways it could get worse.
Remittances to north Africa, many of which come from workers now in Europe, could fall off as jobs become scarcer.
Then there’s the currency question, given that the Tunisian dinar and Moroccan dirham are pegged to currency baskets heavily weighted towards euros.
So far the euro hasn’t really fallen against the dollar but if it does, expect inflation to rise as imports (such as energy) get more expensive. Inflation also means even worse deficits as governments increase spending on subsidising food and gas (austerity isn’t really an option in revolutionary-prone regions).
North Africa’s already down. Europe’s problems threaten to give it another kick.
