I visited all the countries in North Africa and the eastern Mediterranean, from Morocco to Turkey, last year in the course of a study on the potential for increasing gas exports from the region to the European Union.
Since then, the ruling families in Tunisia and Egypt have been overthrown while, at the time of writing, there was turmoil in Libya and protests in other countries. My younger daughter suggested that there might be a link with my visits – if only.
Based on my knowledge of the oil & gas industry in the region, I am not surprised that there have been political revolutions, but I am amazed at their speed and also the domino effect that may well continue.
I don’t want to comment on the political implications of what is happening but believe I have a reasonable understanding of the underlying economic factors.
In my free time I have visited the usual tourist attractions – the pyramids at Giza, the Egyptian Museum in Cairo, Carthage in Tunisia and lots of medinas and souks. I like to spend most of my weekends in the region, however, just wandering around the city centres, eating and drinking in local cafes and restaurants.
Cairo, for example, is an amazing city with a population of about 20million. Most live in abject poverty, however, with an average family income of about £10 per week. Egypt and Libya are rich countries by African standards, mainly because of their oil & gas resources, but very little of that wealth reaches the local people.
Most of the hydrocarbons revenues have gone to the families and friends of Mubarak, Gaddafi and Ben Ali in Tunisia. A similar situation prevails in many of the countries in the Middle East, including Saudi Arabia and the United Arab Emirates, although the local populations there are financially much better off than those in North Africa.
A common indicator used by economists to compare standards of wealth is economic output (gross domestic product – GDP) per person.
The simplest way of making that calculation is to divide a country’s total economic output by the number of people.
However, most economists prefer to take account of differences in the cost of living between countries by using purchasing power parity (PPP).
Any visitor to North Africa will know that the cost of living is much lower there than in Scotland, unless you stay and eat in five-star hotels.
The following are the World Bank’s estimates of average GDP per person in 2009, using the PPP method for the countries in North Africa, plus a few selected others, together with the rankings among 162 countries in US dollars:
1. Luxembourg $84,003
2. UAE $57,827
14. UK $36,946
31. Saudi Arabia $23,429
41. Libya $16,526
76. Tunisia $8,284
79. Algeria $8,184
89. Egypt $5,680
162. Congo $320
Luxembourg is reckoned to be the richest country in the world, with an average income of about $84,000 per person.
The UK ranks 14th, with an average of about $37,000, or £23,000 per person.
The North African averages are much lower but nevertheless still much higher than in Congo, which is the poorest country in the world.
These averages can be misleading, however, because they do not take into account the distribution of wealth in a country.
In my opinion the main catalyst of the revolutions in Tunisia, Egypt and Libya has been the fact that most of their oil revenues have been going into the pockets of the ruling elites. The general populations have seen very little benefit.
In Egypt, for example, the GDP statistics may show an average annual income of $5,680, but I believe that most families are living off less than $1,500. There is a high level of unemployment, particularly among young people who seem to have been the catalysts of the revolutions in each of the three countries.
Reports have suggested that ex-president Mubarak and his family have amassed overseas assets worth more than $40 billion.
That is probably a gross exaggeration, but there is plenty of evidence to indicate that the Mubarak, Gadaffi and Ben Ali families are extremely rich whilst most of their people live in poverty.
Unfortunately, little of that wealth has been invested in their own countries.
Much of these families’ wealth has come from oil & gas. Libya and Egypt are both important exporters of these commodities.
However, their industries are dominated by state oil companies such as the National Oil Company (NOC) in Libya and the Egyptian General Petroleum Corporation (EGPC), whose operations and finances are far from transparent.
One of the WikiLeaks cables, for example, states that in June 2008 Mutassim Gadaffi, the fourth son of the Libyan leader, asked the chairman of the NOC for $1.2billion in cash or oil shipments.
The situation of huge internal differences in wealth is similar in many countries in the Middle East, including Saudi Arabia and the UAE, which are much more important oil producers.
Therefore I believe there could well be a domino effect until the worst income inequalities are removed.
Tony Mackay is MD of economists Mackay Consultants.
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