An Egyptian woman walks past an exchange store in the capital Cairo on January 6, 2013
© Khaled Desouki
An Egyptian woman walks past an exchange store in the capital Cairo on January 6, 2013
Last updated: July 2, 2013

Midyear review of MENA economies

Banner Icon A large portion of the different countries' outlooks are either determined by or heavily dependent on factors outside their control, writes Bassam Aoun in his roundup of a number of MENA economies.

As the year has passed its midway mark, changes are still reverberating throughout the region. Governments across the MENA are fighting for legitimacy to this day, often mired in an atmosphere ridden with public skepticism.

Economies have been shouldering a significant amount of the socio-political pressure, subsequently adding to several of these governments’ woes. Some administrations, however, have been capitalizing on newfound opportunities, supplementing a growing divide between nations that are facing a positive outlook and those facing a negative one.

The cross-section analysis of some of the region’s economies below provides a freeze-frame panoramic view of the state of these countries’ markets, based solely on economic figures and credit reports.

POSITIVE

United Arab Emirates
The recent merger between Dubai and Abu Dhabi’s aluminum smelters, which created Emirates Global Aluminum, the world’s fifth largest producer of the commodity, was valued at $15 billion. The deal between the Mubadala Development Company and the Investment Corporation of Dubai represents a business synergy that is not only exemplary of the UAE’s growth strategy, but also continues to work exceptionally well for the state. Dubai, a regional and commercial hub, combined with Abu Dhabi, an oil-rich economic powerhouse, have fueled several elements of the Emirati market to make it a top destination for a myriad of investors. From the ongoing construction boom to the recovering real estate market and flourishing education sector, the Emirati Authority’s legitimate efforts to diversify its spending portfolio have ultimately placed it on a path to a sustainable economic growth model.

GDP Growth: 4%
Inflation: 1.9%
Unemployment: 2.8%
Current Account Balance: $26.76 billion

Qatar
The small Gulf state recently graduated from a frontier market classification by attaining an upgrade from MSCI Inc. to become a recognized emerging market. This is forecasted to translate into a healthy boost in foreign direct investment, with some sources expecting an average inflow of $500 million resulting from the rating promotion. This achievement coincided with the introduction of the Qatari government bonds into financial markets, highlighting the government’s steadfast resolve to further expand its impressive investment portfolio. It remains an international leader in the production and export of natural gas, an industry that has absorbed unrivaled capital investments from both domestic and foreign sources. For the time being, it seems that Qatar is likely to keep its streak of rating upgrades going.

GDP Growth: 6.3%
Inflation: 1.9%
Unemployment: 0.5%
Current Account Balance: $58.57 billion

Algeria
As a non-GCC state where social unrest is anything but uncommon, the North African nation is an economic wildcard in several respects. Endemic to all commodity-based economies, Algeria is still heavily dependent on its oil revenues, which make up 97% of exports and a considerable 37% of national income. The year-on-year expansion of its non-oil sectors, however, is what sets this nation aside from most of the region. Growth rates in the agricultural industry have increased by more than three percentage points from 2011 to 2012, and this is expected to remain robust. Construction activity has also been on the rise within the same timeframe, increasing from 3% in 2011 to 5.9% in 2012. Overall, the previous outlooks are far more optimistic than this one, but as long as trends remain positive and key indicators portray a gradual amelioration of the local business environment, Algerian markets will continue to benefit from economic diversification.

GDP Growth: 2.6%
Inflation: 8.5%
Unemployment: 10.2%
Current Account Balance: $19.95 billion

NEGATIVE

Egypt
When closing the first chapter of the incipient Egyptian democracy, the last thing the Tahrir Square revolutionaries would have predicted is a stagnant economy and a divided electorate. These troubles do not seem to be subsiding anytime soon; debt issues, excessive public salaries, and a malignant budget deficit only begin to describe the current strain on Egypt’s economy. Furthermore, currency issues have devalued the Egyptian Pound against the US Dollar by 10% over the past six months alone. The government has attempted to mitigate these strenuous circumstances imposed on markets by pushing for favorable terms on a loan from the International Monetary Fund. These efforts, however, have thus far proven unsuccessful, due to the technical conditionalities that require the removal of vital social subsidies. Although President Morsi’s administration has recently approved the issuance of sukuk, or Islamic bonds, in an effort to improve the financial situation, fiscal health and a thriving marketplace seem relatively distant goals for the time being. Should the current civil protests result in further social unrest, regardless of the endgame, then these goals will be shoved even more into the horizon.

GDP Growth: 2%
Inflation: 8.5%
Unemployment: 12.5%
Current Account Balance: -$8.417 billion

Jordan
An example of what Egyptian authorities have come to fear when evaluating a loan engineered by a multilateral lending agency is the current state of economic affairs in the Hashemite Kingdom. The public budget, regardless of active policies in place to keep it afloat, continues to expand its deficit, which is expected to reach $3 billion by year’s end. Subsidies remain the primary drain, which prior to last year covered several living costs for the average Jordanian, such as fuel, foodstuffs, and electricity. Last November, in response to the IMF’s loan terms, King Abdullah II removed fuel subsidies, causing a subsequent spike in prices and a deterioration of the already faltering business environment and sputtering jobs market. Jordan’s fragile economy has recently upped its dependence on foreign aid due to the Syrian refugee crisis, resulting in a 316% spike in international donations and soft loans between 2011 and 2012. Until this crisis subsides and the government’s ledgers are resuscitated, the Kingdom will continue to lean heavily on its donors to get by.

GDP Growth: 3%
Inflation: 4.8%
Unemployment: 12.3%
Current Account Balance: -$3.359 billion

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Lebanon
Public debt is expected to skyrocket past $60 billion this year, having expanded by $5 billion during the last elected Cabinet’s term. Banking industry representatives have attributed this spike in liabilities to the Lebanese Parliament’s inaction in approving budgets, of which none were passed over the past four years. Another major reason is the inept energy sector; power outages are commonplace and state-owned Electricité du Liban operates on expensive market-priced fuel, extracting $2 billion a year from public coffers. As this is another country deeply influenced by the Syrian crisis, the effects on the state of Lebanese economic affairs have been malicious and more. Trade has been choked and the tourism industry, a vital sector in several respects, has also taken a beating, with hotel occupancy rates down by 10% in the first quarter. Moody’s has announced its pessimism towards the short-term outlook on Lebanese markets, yet some analysts in the region believe the rating agency may have been too lenient.

GDP Growth: 2%
Inflation: 5.5%
Unemployment: 10.3%
Current Account Balance: -$7.85 billion

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Conclusion

The status quo of the Middle East is fluid and policy deliberations are ongoing, both domestically and internationally. A large portion of states’ outlooks, be they prosperous or subpar, are either determined by or heavily dependent on factors outside their control. Ratings and classifications shift at what seems like a moment’s notice. While this provides numerous avenues for economic disaster, it also opens doors to lucrative opportunities. Such is the nature of the MENA region.

This is the first article in our quarterly review of the Middle East economies.

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Bassam Aoun
Bassam Aoun is a Business Editor at Your Middle East. He is currently based in Abu Dhabi and holds a BA in Economics from the American University of Beirut and an MPP (Master of Public Policy) from the University of Chicago. He has written for the Chicago Policy Review and is interested in economic and fiscal policy in the Middle East.
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