William Bauer
Last updated: 15 March, 2012

North Africa: Open For Business?

The Arab Spring has engendered turmoil and change across North Africa, compounded in some cases by civil strife and political uncertainty. Libya has been shaken by war; Egypt has been affected by unrest and Tunisia continues on its long, obstacle-strewn path to electoral democracy.

Yet, one of the most damaging effects of the Arab Spring has been the economic loss incurred by the region as a result of the various upheavals and subsequent exodus of foreign capital. For the past year, investors have largely stayed away throughout, fearing the consequences of social unrest on the security of doing business in the region.

For many in the business sector, North Africa has always been synonymous with risk, and associated with businesses and investors comfortable with the former. To not get burned in North Africa you need to be connected and have enough ‘wasta’ (Influence in Arabic) to obtain contracts in countries such as Algeria, Tunisia, Morocco and Libya. However, even the risk-hardened have largely balked at doing business in the region for the past year.

The Middle East and North Africa (MENA) must now seek to attract investment. According to recent figures released by the IMF the cost of the Arab Spring to the region has been over $55 billion – in loss to GDP and public finances. Additionally, the growing, young populations in most of MENA require 100 million new jobs to be created region-wide within the next ten years to stave off chronic unemployment. There is enormous pressure on governments to diversify very weak and structurally inefficient economies to stave off a nightmare scenario of a disenchanted and angry youth population.

Consequently, the impetus for incoming, post-Arab spring governments is to incentivize the diversification of MENA economies; the opportunities for foreign investors and businesses look set to grow. 

But, is this really the case? Is it wise to invest at this stage in a region still plagued by issues that are still unresolved and fresh from unrest that has not yet simmered down? Indeed, is North Africa really open for business?

Libya remains the prime example of a North African market not ready for major investment. Today, almost six months on from the death of Muammar Ghaddafi, the situation in Libya still has to stabilise nationwide, with factions and armed militias pitted against each other.

In post-Ghaddafi Libya, there is hope that the overly-large, corrupt and state owned business sector will be reformed to allow for greater competition. Libya is certainly a market with much potential and a wealthy one due to its large oil reserves. Business could be highly profitable in the country, if the archaic regulations and bureaucratic hangovers of the Ghaddafi era are reformed.

However, in a country that has suffered over $14.2 billion in loss of government revenue and GDP, in addition to significant curtailment of oil generated revenue, together with a systematic destruction of infrastructure and institutions during the uprising, any investment would be high risk. This might be a market to be left to oil firms and indigenous businesses for the time being, whilst awaiting the reforms and stabilization promised by the National Transitional Council.

In the past, Egypt had a thriving tourism sector and multiple foreign firms had core investments in the country. Many considered Egypt to be a fairly safe, if bloated, market with regard to investment. The tourist trade meant a fairly broad range of investment opportunities was available. Not any more.

The country’s image is now one of strife and turmoil, with the army in firm control. This is a dangerous situation, as the smallest of sparks may ignite a wider inflaming of tensions and anger amongst Egyptians. Additionally, there have been riots since the overthrow of Hosni Mubarak and rising ethno-religious tensions within Egypt. Whilst much of Egypt’s tourist trade is based in the east of the country, and most of the unrest has occurred in Cairo or major cities, it is still a worry for business.

However, the government of Egypt continues to recognise the critical importance of foreign investment in bettering the country’s economic outlook. Once the situation settles, greater opportunity for investment and investors will be forthcoming. In the meantime, all eyes are on Egypt’s rulers and the forthcoming presidential elections.

Further west, the Tunisian government is desperately seeking foreign investors. According to Reuters a recent series of advertisements was put into western publications, saying that businesses should come to Tunisia and “invest in democracy”.  This is very much the image Tunisia wants to portray, namely that of a democratic and safe nation. But is this accurate?

Strikes and enduring high unemployment rates are continuing factors hampering a poor economic recovery for Tunisia. Furthermore, the tourist trade is starting to get momentum again but is not up to pre-Arab Spring levels. There may be some interesting business opportunities to be had in Tunisia, but these are often compounded by the stagnant socio-political climate prevailing in the country. It is an economically bleak short to medium term outlook.

Algeria is a tricky market, as for decades the rentier nature of the state has entailed a very weak private sector. Political instability with regards to high youth unemployment make this a highly volatile market, due to its propensity to change very rapidly. This would be considered a very risky market place.

Morocco is the regional country most open to business investment. It is the archetype for investment in the region, and has many partnerships with large western firms. Renault has opened a new car plant in Tangiers, signalling the importance of Morocco as a secure gateway to African market places.

Following this overview, the question remains: Is North Africa open for business? The answer is mixed. Certain markets such as Morocco are tried, tested, successful and open. Others such as Libya and Egypt, are currently only for the bravest of the brave investors.

It is an undeniable truth that business has been deeply affected in North Africa by the Arab Spring. Whilst some markets remained unaffected, others are still struggling with the subsequent legacy of political change and social upheaval. Foreign investors would most likely be welcome in most of the countries mentioned, critical as they are to rebuilding local economies and enabling a long-term economic outlook to be fashioned. Yet, it is undeniably risky and that feeling of lack of control, exposure to the prevailing winds of the Arab Spring and overall lack of concrete stability, will put many off investing.

It is too soon yet to tell whether North Africa truly is open for business but it may be wise to wait a further year before taking the plunge.