LAUSR

In today’s globalized world, multinational firms contend with a diverse set of risk factors in their worldwide operations. The recent regime changes in northern African countries, also called the Arab Spring, have highlighted that political instability is one of these factors. As researchers and existing indices of political instability largely failed to predict those developments, firms had not incorporated them into their risk calculations and hence incurred losses while having to adapt their operations. This paper examines the conditions that contributed to the recent instability in North Africa using Tunisia and Egypt as case studies. It evaluates the extent to which existing measures of political instability incorporate those conditions. The analysis reveals that the main conditions contributing to the political turmoil can be seen in socio-economic factors, namely inequality, poverty, youth unemployment, a growing youth population, and especially in the case of Egypt an independent military. These findings reveal gaps in current measures of political instability, whose dominant focus is on factors describing violence and changes in the political system while neglecting the influence of a country’s socio-economic environment.