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Aug. 24, 2011, 12:00 a.m. EDT
By Matthew Lynn
LONDON (MarketWatch) "” Germany is edging back to recession. France is getting caught up in the euro zone's crisis. Greece is close to default, and may take a bank or two down with it. Good economic news is in painfully short supply in Europe right now.
But the fall of Col. Muammar Qaddafi is one event we can celebrate. For Europe, it opens up huge new growth possibilities.
With Qaddafi gone, we have now seen new regimes installed in Tunisia, Egypt and Libya. Syria can't be very far behind. The Arab Spring is morphing into an Arab Autumn, with clear victories for the modernizers.
This is opening up a vast new market, and it is right on Europe's doorstep. Two of these are big countries. They all have young populations. A few at least have a lot of natural resources. And they all have deep historical links with the main European nations "” France, Italy, and Britain in particular.
The News Hub covers the struggle in Tripoli between Libyan rebels and Qaddafi loyalists. Also, Standard & Poors' chief resigns. And criminal charges against Dominique Strauss-Kahn expected to be dropped. Photo: FILIPPO MONTEFORTE/AFP/Getty Images
Europe's leaders have got a lot of stuff wrong in the last couple of years. But in calling time on Qaddafi, and coming to the assistance of the rebels, they have got something right "” and can reap the benefits for years to come.
True, we still don't know the precise fate of the colonel or his regime. But the rebel forces are advancing into Tripoli, and the end of his 40-year reign of terror can only be days if not hours away.
That will complete a remarkable run of uprisings stretching right across North Africa. It started in Tunisia, moved on to Egypt, and then to Libya. Protestors are still struggling to topple the regime of Syria's President Bashar Assad. But with Qaddafi gone, his days must surely be numbered.
What are the economic implications of that? The markets are focussing on oil most immediately. Libya is a major oil producer, and a big exporter to Europe. It is one of the 10 largest producers in the world. Whatever kind of new government the rebels form in Tripoli it is going to be desperately short of cash. It will pump as much oil as it can as quickly as possible to generate the revenues to rebuild the country. That will increase supply and lower prices "” and give the global economy some help at a difficult juncture.
But oil isn't the real story. The real prize is a new, vibrant economic region just a few miles from Europe's southern Mediterranean coastline. Investors haven't focussed on North Africa much in the last decade. Most people in the global markets would have dismissed the region as a string of dirt-poor autocracies with little to recommend it. Libya's sovereign wealth fund, controlled by the Qaddafi family, was a soft touch for a few hedge funds. Other than that, no one paid much attention.
Maybe they should have done. In fact, most of them have been growing at a reasonable clip. Between 2003 and 2008 North Africa saw real gross domestic product growth of 5% annually according to a Deutsche Bank report published last year. The uprisings will have dented that for a year or two. Economies don't usually grow much in the middle of a civil war. But once the dust has settled, they should be able to resume that kind of growth rate.
Egypt has 82 million people, roughly the same number as Germany. Tunisia has 10 million and Libya 6 million. That's almost 100 million potential consumers and producers. Add in Morocco, and you have another 30 million. True, each of the North African countries is relatively poor. But they have young labor forces. The proportion of 15- to 24-year-olds in the population is 20% in Morocco, Egypt and Tunisia and only slightly less in Libya. That is much higher than Western Europe, and higher even than China or Latin America. Indeed, the only region with more young people is sub-Saharan Africa. You don't need to know much about demographics to know that countries with lots of young people grow faster than ones with lots of old folk.
Of course, we don't know how this Arab Autumn will play out. All these countries could slip back into corrupt autocracies. Islamic extremists may end up taking control "” the developments out of Tunisia are not encouraging.
But it is important not to be too pessimistic. They could well, like Turkey, transform fairly rapidly into fast-growing, stable democracies. There will be a few bumps on the road. But if Turkey "” which now has a per capita GDP of $10,079 "” can do it, there is little reason why North Africa can't.
Europe has close ties with all of them. The British and the French and the Italians have been trading there for decades. In total, the EU accounts for 53% of trade with North Africa, far more than any other region. It is not just raw materials and agriculture. Morocco has been becoming an important offshore manufacturing center for French and Spanish companies.
The British and the French governments, in particular, called the conflict right. The French may have supported Tunisia's Ben Ali early on, but they soon learned it was better to cut loose from old autocrats. And they used military force to intervene decisively on behalf of the Libyan rebels "” at considerable political risk to French President Nicolas Sarkozy and British Prime Minister David Cameron. That may well have created goodwill that will last for a couple of generations.
Military intervention is always expensive. The Libyan campaign has cost the U.S. an estimated $900 million so far, and Britain has estimated its bill at £200 million ($325 million). That's hardly loose change at a time when budgets everywhere are squeezed. But it is a bargain compared to the Iraq war "” estimated direct cost $1 trillion "” and should have a more immediate payoff.
Over the medium term, growth depends less on short-term moves in interest rates, or whether the government is expanding or cutting the budget deficit, than it does on the real economy. New technologies, and new trading partners "” that's what creates genuine economic expansion. If North Africa opens up, it creates a vast new market, and a huge new pool of labor right in Europe's neighborhood.
Amid all the gloom about the regions troubled economic prospects, that is undoubtedly good news.
Matthew Lynn is a financial journalist based in London. He is the author of "Bust: Greece, the Euro and the Sovereign Debt Crisis," and he writes adventure thrillers under the name Matt Lynn.
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