INFERNO: Lone fireman tries to extinguish an oil depot fire in Libya CFP

The current political upheavals in North Africa and elections related violence in several African countries will have far reaching economic effects for years to come. In the coming months, about 17 general elections are in the works, and if we go by recent experiences – Côte d'Ivoire, Guinea, Nigeria, Kenya, Uganda and Zimbabwe, the possibility of post elections conflict, violence and social unrest remains high. Just as the region's economies were beginning to grow again, following the global financial crisis, political instability is raising new concerns of macroeconomic distortions and declining business confidence, driving foreign investment away.

It is hard to predict the overall effects of political instability on African economies. Different countries will fare differently, and the net effects in the short, medium and long term will depend on a combination of factors: duration and intensity of the conflict, effectiveness with which the emerging leadership manages the transitions, the quality and relevancy of the assistance they receive from the international community, the overall performance of the global economy, and unpredictable events such as natural disasters. Rising international food and fuel prices will make matters worse.

Capital flight

In the short to the medium term, we can expect affected African economies to experience significant economic and financial shocks resulting in capital flight, reduced government revenues, budget and trade deficits, massive job losses, growing inflation pressures, weakening financial and banking sector leading to domestic liquidity problems and high cost of borrowing, and diversion of public expenditures from needed capital infrastructure development to coping with immediate demands to restore stability and resuscitate the economy. In Tunisia, the cost of the revolution is estimated at 4 percent of GDP, and Egypt reported double-digit inflation of 12.1 percent this past April. The hope is that early elections will restore stability and business confidence.

But not all economies will be equally affected. Where regime change is quick and surgical, where the country is small, cohesive with the institutions and infrastructure to rebuild (e.g. Tunisia), the cost of instability to the economy can be minimized. Larger countries, deeply divided by religion, region or ethnicity, or resource-rich countries with highly contested and protracted instability like Egypt, Côte d'Ivoire, Libya and Zimbabwe, economic recovery can be slow and take much longer.

Countries can alleviate severe economic effects by working closely with the international community. The World Bank is working closely with the African Development Bank to raise funds for Tunisia. The International Monetary Fund and Economic Community of West African States (ECOWAS) are backing the Ouattara administration in Côte d'Ivoire, and the United States has promised to cancel Egypt's debt by $1 billion.