NAGOYA, Japan (Reuters) – Saudi Arabia is set to take over the G20 presidency for a year as it seeks to bounce back from an uproar over its human rights record and last year’s killing of journalist Jamal Khashoggi. Foreign ministers attend a dinner during the G20 foreign ministers’ meeting, in Nagoya, Japan November 22, 2019. Charly Triballeu/Pool via REUTERS
The kingdom’s new foreign minister, a prince with diplomatic experience in the West, landed in Japan’s Nagoya city on Friday to meet with his counterparts from the Group of 20 nations.
Prince Faisal bin Farhan Al Saud was appointed in October in a partial cabinet reshuffle, joining a new generation of royals in their 40s who rose to power under Crown Prince Mohammed bin Salman, 34, the de facto ruler of the world’s top oil exporter.
Saudi Arabia – a key U.S. ally in confronting Iran – has faced heavy Western criticism over the murder of Saudi national Khashoggi, its detention of women’s rights activists and its role in the devastating war in Yemen.
Diplomats say the G20 might help put Riyadh’s problems behind it and could prompt it to close more disputed files such as the Yemen war and the boycott of Gulf neighbour Qatar, though they have yet to see much progress.
King Salman has hailed the kingdom’s G20 presidency as proof of its key role in the global economy. [nL8N28041F]
Prince Faisal will pick up the baton at a ceremony on Saturday in Nagoya, where G20 foreign ministers have gathered for talks.
Japan – which headed the G20 this year – was the kingdom’s second-largest export market last year, at $33 billion, according to IMF trade data.
Apart from its reliance on Saudi oil, Japan has deepened its ties to the kingdom thanks to Japanese technology conglomerate SoftBank Group. Riyadh has been a big supporter of SoftBank’s massive Vision Fund.
Japanese Foreign Minister Toshimitsu Motegi told Prince Faisal he was pleased to meet him for the first time and both sides wanted to boost relations, according to a read-out from Japan’s foreign ministry.
Motegi praised Saudi work to stabilise southern Yemen, where Riyadh orchestrated a deal to end a power struggle between Yemen’s government, which it backs, and southern separatists. [nL8N27L6J1]
King Salman also said this week Riyadh wants a political settlement in Yemen, where it has battled Iran-aligned Houthis in a nearly five-year war that has killed tens of thousands and drive parts of the country to the brink of famine.
A diplomatic source said there had been an “apparent de-escalation” in Yemen’s conflict in recent weeks. The source said Saudi airstrikes killing civilians would not be “a great backdrop for hosting the G20” and would not mesh with the kingdom’s message of opening up.
Diplomats said that Saudi Arabia plans more than a dozen G20 summits throughout the year on tourism, agriculture, energy, environment and digital economy.
Top diplomatic and business contacts suggest Riyadh has already gotten over much of the opprobrium it received over Khashoggi’s murder, but it still struggles to attract foreign investors, said analyst Neil Partrick.
A Saudi court charged 11 suspects in a secretive trial and Western allies imposed sanctions on individuals. But Riyadh still faces heat from some governments saying the crown prince – known as MbS – ordered the murder. He has denied this though said he takes ultimate responsibility as de facto ruler.
Riyadh has sought to fix its image or turn attention to its social reforms since Khashoggi’s 2018 killing at the hands of Saudi agents in Istanbul.
A share sale of giant Saudi state oil firm Aramco this month and a bond sale earlier this year – under a drive to diversify the largest Arab economy away from oil – attracted interest in the traditional sectors of energy and finance.
After boycotting the Saudis’ annual “Davos in the Desert” summit in 2018, Western executives returned to the 2019 gathering last month. “Davos in the Desert” is unrelated to the annual World Economic Forum in Davos, Switzerland.
Reporting by Ellen Francis in Nagoya and Stephen Kailin in Bahrain with additional reporting by David Dolan in Nagoya; Writing by Ellen Francis; Editing by Mark Heinrich
SMEs in the Middle East and North Africa (MENA) contribute approximately $1 trillion to the region’s economy per year, accounting for 96% of registered companies and employing approximately half of the workforce. Unsurprisingly, these businesses are the backbone on MENA’s rapidly evolving economies and are being recognised as a priority among the region’s governments. However, SMEs face fundamental obstacles to their potential growth, namely stringent regulations and compliance procedures, but chiefly access to finance. Indeed, traditional lenders have typically shied away from smaller and less established businesses in the wake of the financial crisis, instead opting for the assurances of larger companies.
However, as the region’s SMEs grow in importance, opportunities for alternative finance providers are emerging to plug the finance gap. Traditional lenders, including banks, are having to adapt and are increasingly responding to these needs and leveraging technology to ensure SMEs can tap into their full potential.
SMEs emerging as a priority
As the region shifts its economic focus away from oil to economic models that enhance the role of the private sector, governments have recognised the importance of SMEs. The added value of jobs and economic growth offered by these businesses has meant that SME have become a priority. For example, Dubai’s Department of Finance has most recently announced a set of initiatives to boost the UAE’s fledgeling SMEs, which have grown by over 30% in the last decade. Among these initiatives, the government has committed to allocating 5% of the government capital projects to SMEs.
Financial crisis still resonates for banks
With SMEs therefore seen as a catalyst for economic growth, they still face major obstacles that stop them from reaching their potential. Following the financial crash in 2008, access to funding has been more limited in the region and indeed globally.
SMEs face a $260 billion credit gap in the region, with just one in five SMEs benefitting from traditional finance and accounting for only 7% of bank lending. But now, the attitude of lenders, such as banks, is having to catch up as these businesses take on their role as pivotal contributors to economic growth.
Various types of alternative finance emerging
As a result of the credit gap faced by SMEs, innovative alternative financing options have emerged, fuelled by the increasing digitalisation of businesses in the region. Funding models, such as Peer-2-Peer lending are seeing growth increase, from $4.5 million total market volume in 2014 to $32.5 million in 2016. Over the same period, equity-based crowdfunding has enjoyed growth from $62 million to $100.32 million.
However, there are indications that this growth is slowing, where the lack of regulatory clarity and flexibility is making the activity of alternative finance providers more complicated.
Opportunity for traditional lenders fuelled by technology
The lack of regulatory clarity for alternative finance providers has created an opportunity for traditional lenders, such as banks – an opportunity they are beginning to tap into. The increasingly sophisticated digitalisation of finance has also enabled traditional lenders to adopt these processes, allowing them to mitigate risk and broaden their offering, making bank lending more accessible to SMEs.
One example of this is the growth of established models such as asset based financing and factoring. As this form of finance has evolved, the emergence of new technologies has improved its appeal to banks, making a long-established model increasingly effective, efficient and ultimately more attractive. This has resulted in asset based financing growing by 7% in the Middle East in 2018 alone – not far behind the global figure of 9%.
The increased take-up of such technologies by banks means that they can now not only compete with alternative finance providers to provide modern financing to SMEs, but they can also partner with these providers to evolve their offering even further.
MENA is experiencing a period of exceptional growth for SMEs, but in order to realise the true potential of these businesses, we must place greater focus on access to funding. Only with better access to finance can these businesses unlock growth as they navigate supply chains, working capital gaps and encourage innovation. Well established lenders have in recent years shied away from such businesses, but as technology evolves and the popularity of alternative finance providers signal the changing demands of businesses, there is an opportunity for them to tap into this market once again. Banks that recognise the opportunity to seize digitalisation and work to learn from the innovation in alternative finance, will be the ones who are working hand in hand with the region’s governments to ensure that the businesses that form the backbone of their economies reach their full potential.
China is manoeuvring to avoid being sucked into the Middle East’s numerous disputes amid mounting debate in Beijing on whether the People’s Republic will be able to remain aloof yet ensure the safety and security of its mushrooming interests and sizeable Diaspora community.
China’s challenge is starkest in the Gulf. It was compounded when US President Donald J. Trump effectively put China on the spot by implicitly opening the door to China sharing the burden of guaranteeing the security of the free flow of energy from the region.
It’s a challenge that has sparked debate in Beijing amid fears that US efforts to isolate Iran internationally and cripple it economically could lead to the collapse of the 2015 international agreement that curbed Iran’s nuclear program, accelerate Iran’s gradual breaching of the agreement in way that would significantly increase its ability to build a nuclear weapon, and potentially spark an unwanted military confrontation.
All of which are nightmare scenarios for China. However, Chinese efforts so far to reduce its exposure to risk are at best temporary band-aid solutions. They do little to address the underlying dilemma: it is only a matter of time before China will have no choice but to engage politically and militarily at the risk of surrendering its ability to remain neutral in regional conflicts.
That is precisely the assessment that Iran hopes will persuade China alongside Russia and the European Union to put their money where their mouth is in countering US sanctions and make it worth Iran’s while to remain committed to the nuclear accord.
The problem is that controversy over the agreement is only one of the multiple regional problems. Those problems require a far more comprehensive approach for which China is currently ill-equipped even if it is gradually abandoning its belief that economics alone offers solutions as well as its principle of no foreign military bases.
China’s effort to reduce its exposure to the Gulf’s energy supply risks by increasing imports from Russia and Central Asia doesn’t eliminate the risk. The Gulf will for the foreseeable future remain a major energy supplier to China, the region’s foremost trading partner and foreign investor.
Initially delivering approximately 500 million cubic feet of gas per day or about 1.6 percent of China’s total estimated gas requirement in 2019, the project is expected to account with an increased daily flow of 3.6 billion cubic feet for 9.5 percent of China’s supply needs by 2022.
China is likely hoping that United Arab Emirates efforts to stimulate regional talks with Iran and signs that Saudi Arabia is softening its hard-line rejection of an unconditional negotiation with the Islamic republic will either help it significantly delay engagement or create an environment in which the risk of being sucked into the Saudi-Iranian rivalry is substantially reduced.
Presumably aware that Gulf states were unlikely to engage with Iran without involvement of external powers, Iran appeared to keep its options open by also endorsing the Russian proposal.
The various manoeuvres to reduce tension and break the stalemate in the Gulf put Mr. Trump’s little noticed assertion in June that energy buyers should protect their own ships rather than rely on US protection in a perspective that goes beyond the president’s repeated rant that US allies were taking advantage of the United States and failing to shoulder their share of the burden.
Potentially, Mr Trump opened the door to an arrangement in which the United States would share with others the responsibility for ensuring the region’s free flow of energy even if he has given no indication of what that would mean in practice beyond demanding that the United States be paid for its services.
Dr James M. Dorsey is a senior fellow at Nanyang Technological University’s S. Rajaratnam School of International Studies, an adjunct senior research fellow at the National University of Singapore’s Middle East Institute and co-director of the University of Wuerzburg’s Institute of Fan Culture
The unrest is, in turn, contributing to slower growth in the Middle East and North Africa region, alongside global trade tensions, oil price volatility and a disorderly Brexit process.
DUBAI: Unemployment and sluggish economic growth are fuelling social tension and popular protests in several Arab countries, the International Monetary Fund said Monday.
The unrest is, in turn, contributing to slower growth in the Middle East and North Africa (MENA) region, alongside global trade tensions, oil price volatility and a disorderly Brexit process, the IMF said in a report on the regional economic outlook.
Earlier this month it lowered the 2019 forecast for the region — taking in the Arab nations and Iran — to a meagre 0.1 per cent from 1.1 per cent last year.
The IMF slashed its outlook for the region’s three largest economies — Saudi Arabia, Iran and the United Arab Emirates.
The risks around the forecast of earlier this month “are skewed to the downside and are highly dependent on global factors,” the IMF said in its report on Monday.
“The level of growth that countries in the region are having is below what is needed to address unemployment,” said Jihad Azour, the IMF’s director for the Middle East and Central Asia.
“We are in a region where the rate of unemployment at the youth level exceeds 25-30 per cent and this requires growth to be higher by 1-2 per cent” in order to make a dent in joblessness, Azour told AFP in an interview.
The IMF report said that high unemployment was worsening social tensions in Arab countries.
“Unemployment averages 11 per cent throughout the region versus seven per cent across other emerging market and developing economies,” it said.
“Women and young people are particularly likely to be out of work, with more than 18 per cent of women…without jobs in 2018.” Violent protests have broken out in several Arab countries since early 2010 and turned into bloody civil wars in Syria, Yemen and Libya.
A new wave of demonstrations erupted over the last year in Algeria, Sudan, Iraq and Lebanon, typically demanding economic reforms and action against corruption.
In Lebanon, where protesters have brought the country to a standstill with demands for a full overhaul of the political system, the economy grew at a very slow pace over the past few years, Azour noted.
“The government has to act firmly and swiftly in order to address those imbalances, bring confidence back by addressing the fiscal situation, and lower expenditure,” he said.
The IMF also said that public debt levels were very high in many Arab countries — exceeding 85 per cent of gross domestic product (GDP) on average, with rates of more than 150 per cent in Lebanon and Sudan.
“Having built over many years, the cost of public debt burdens has become sizeable, preventing investments critical to the region’s long-term economic future,” it said.
The IMF said that Iran, which is subject to crippling US sanctions, has entered a steep economic recession and faces a battle against spiralling inflationary pressures.
The Islamic republic’s economy is projected to contract by 9.5 per cent this year after posting negative growth of 4.8 per cent in 2018.
Iranian authorities must align “the exchange rate close to the market rate and also reform the financial sector…and try to address some of the implications of the high level of inflation,” Azour said.
As a result of the sanctions, Tehran is believed to be exporting only around 500,000 barrels per day of crude, down from over two million bpd before the sanctions.
The IMF said that oil-rich Gulf Cooperation Council (GCC) states, led by Saudi Arabia, are expected to grow by just 0.7 per cent this year from 2.0 per cent in 2018 due to lower oil prices and output.
“GCC economies need to diversify and grow out of oil and this requires them to accelerate the reforms that have been started in the last four to five years,” Azour said. Stay up to date on all the latest World news with The New Indian Express App. Download now (Get the news that matters from New Indian Express on WhatsApp. Click this link and hit ‘Click to Subscribe’. Follow the instructions after that.)
Lebanon pushed to the brink, faces reckoning over graft after allies, investors, protesters press for change in the country as per Jonathan Spicer, Tom Perry and Samia Nakhoul, Reuters News in this ECONOMY‘s article dated 21 October 2019.
BEIRUT – Lebanon is closer to a financial crisis than at any time since at least the war-torn 1980s as allies, investors and this week nationwide protests pile pressure on the government to tackle a corrupt system and enact long-promised reforms.
Prime Minister Saad al-Hariri‘s government on Thursday hastily reversed a plan, announced hours earlier, to tax WhatsApp voice calls in the face of the biggest public protests in years, with people burning tyres and blocking roads.
The country – among the world’s most indebted and quickly running out of dollar reserves – urgently needs to convince regional allies and Western donors it is finally serious about tackling entrenched problems such as its unreliable and wasteful electricity sector.
Without a foreign funding boost, Lebanon risks a currency devaluation or even defaulting on debts within months, according to interviews with nearly 20 government officials, politicians, bankers and investors.
Foreign Minister Gebran Bassil said in a televised speech on Friday that he gave a paper at an economic crisis meeting in September saying Lebanon needed “an electric shock”.
“I also said that what little remains of the financial balance might not last us longer than the end of the year if we do not adopt the necessary policies,” he said, without describing what he meant by financial balance.
Beirut has repeatedly vowed to maintain the value of the dollar-pegged Lebanese pound and honour its debts on time.
But countries that in the past reliably financed bailouts have run out of patience with its mismanagement and graft, and they are using the deepening economic and social crisis to press for change, the sources told Reuters.
These include Arab Gulf states whose enthusiasm to help Lebanon has been undermined by the growing clout in Beirut of Tehran-backed Hezbollah, and what they see as a need to check Iran’s growing influence across the Middle East.
Western countries have also provided funds that allowed Lebanon to defy gravity for years. But for the first time, they have said no new money would flow until the government takes clear steps toward reforms it has long only promised.
Their hope is to see it move towards fixing a system that sectarian politicians have used to deploy state resources to their own advantage through patronage networks instead of building a functional state.
A crisis could stoke further unrest in a country hosting some 1 million refugees from neighbouring Syria, where a Turkish incursion in the northeast this month has opened a new front in an eight-year war.
“If the situation remains, and there are no radical reforms, a devaluation of the currency is inevitable,” said Toufic Gaspard, a former adviser to Lebanon’s finance ministry and former economist at its central bank and the International Monetary Fund.
“Since September a new era has begun,” he added. “The red flags are large and everywhere, especially with the central bank paying up to 13% to borrow dollars.”
The first reform on Beirut’s agenda is one of the most intractable: fixing chronic power outages that make private generators a costly necessity, a problem many see as the main symbol of corruption that has left services unreliable and infrastructure crumbling.
Hariri, in a televised speech to the nation, said he had been struggling to reform the electricity sector ever since taking office. After “meeting after meeting, committee after committee, proposal after proposal, I got at last to the final step and someone came and said ‘it doesn’t work’,” he said.
Presenting the difficulties of implementing reform more widely, Hariri said every committee required a minimum of nine ministers to keep everyone happy.
“A national unity government OK, we understand that. But committees of national unity The result is that nothing works.”
Underscoring the pressure from abroad, Pierre Duquesne, a French ambassador handling so-called CEDRE funding, is traveling to Lebanon next week to press the government on the use of offshore power barges, a banker familiar with the plan said.
Duquesne wants the barges included in the electricity overhaul plan, the person said, requesting anonymity.
Duquesne could not immediately be reached for comment.
The contents of the 2020 budget will be key to helping unlock some $11 billion conditionally pledged by international donors under last year’s CEDRE conference. But a cabinet meeting on the budget set for Friday was cancelled amid the protests.
Hariri’s government, which includes nearly all of Lebanon’s main parties, had proposed a tax of 20 cents per day on calls via voice-over-internet protocol (VoIP) used by applications including WhatsApp, Facebook FB.O and FaceTime.
In a country fractured along sectarian lines, the protests’ unusually wide geographic reach may be a sign of deepening anger with politicians who have jointly led Lebanon into crisis.
Fires were smoldering in central Beirut, where streets were scattered with glass of several smashed shop-fronts. Tear gas was fired on some demonstrators.
The newspaper an-Nahar described it as “a tax intifada”, or uprising. Another daily, al-Akhbar, declared it “the WhatsApp revolution”.
“With this corrupt authority, our kids have no future,” said protestor Fadi Issa, 51. “We don’t just want a resignation, we want accountability. They should return all the money they stole. We want change.”
As confidence has faded and dollars have grown scarce, new cracks have emerged between Lebanon’s government and its private lenders, according to several of the bankers, investors and officials who spoke to Reuters.
After years of funding the government with the promise of ever higher rates of return, the banks – sensing the country is approaching collapse – are pressing for it to finally deliver reforms to win over donors.
Most said Lebanon would likely feel more economic and financial strain in the months ahead but avoid haircuts on deposits or a worst-case sovereign default.
Yet Beirut’s years of failure to deliver reforms and the new determination among its traditional donors to press for them has left even top officials, bankers and investors divided over whether a devaluation is in store for the Lebanese pound.
“You need a positive shock. But unfortunately the government thinks reforms can happen without touching the structure that benefits them,” said Nassib Ghobril, head of economic research and analysis at Byblos Bank.
Lebanon must promote reforms to increase capital inflows, he said.
“We can’t keep going to the Emirates and Saudis. We need to help ourselves in order for others to help us.”
This month, Moody’s put Lebanon’s Caa1 credit rating under review for a downgrade and estimated the central bank, which has stepped in to cover government debt payments, had only $6 billion-$10 billion in useable dollars left to maintain stability.
That compares with some $6.5 billion in debt maturing by the end of next year.
The central bank says its foreign assets stood at $38.1 billion as of Oct. 15.
An official told Reuters Lebanon has only $10 billion in real reserves. “It is a very dire situation that has five months to correct itself or there will be a collapse, around February,” he said.
Hariri’s government may have only a few months to deliver fiscal reforms to convince France, the World Bank and other parties to the CEDRE agreement to unlock $11 billion in conditional funding.
The head of regional investments for a large U.S. asset manager said Lebanese officials are privately saying a plan that addresses short- and long-term electricity shortages will be announced before year-end, after which the government will raise tariffs.
But critics say no concrete steps have been taken despite energy ministry statements that the plan is on track.
Hariri left Paris last month with no immediate cash commitment after visiting French President Emmanuel Macron. Likewise this month he left Abu Dhabi empty-handed after meeting Crown Prince Sheikh Mohammed bin Zayed al-Nahyan.
Lawmakers in Beirut struggled to explain what happened in Abu Dhabi after Hariri claimed the United Arab Emirates had promised investments following “positive” talks.
EYES ON HEZBOLLAH
Investors, bankers and economists say at least $10 billion is needed to renew confidence among the Lebanese diaspora whom for decades have underpinned the economy by maintaining accounts back home.
But so far this year, deposits have shrunk by about 0.4%.
The government has sought a smaller cushion from Sunni Muslim allies to buy some time. But to secure funding from the UAE or Saudi Arabia, Beirut would likely have to meet conditions meant to weaken Shi’ite Hezbollah’s hand in Lebanon’s government, said several sources.
Hezbollah, which faces U.S. sanctions, is seen to be gaining more control over state resources by naming the health minister in January after last year’s elections brought more of its allies into the legislature.
Some say Saudi Arabia, UAE and the United States are motivated to hold out on Beirut as part of their wider policy seeking to weaken Iran and its allies which have been fighting proxy wars with Gulf Arab states on several fronts.
“Their tolerance of Iran and Hezbollah has lowered significantly. The ‘Lebanese exception’ is gone,” said Sami Nader, Beirut-based director of the Levant Institute for Strategic Affairs.
“The balance has tilted and we are now at odds with our former friends because Hezbollah now has the upper hand politically.”
The former regional head at a major Western bank put it bluntly: “People have lost patience with the corruption in which a frozen Parliament with no authority is simply divvying up the pie among politicians.”
“But at the end of the day the Lebanese political class usually succeeds in convincing allies that they should not let the system collapse and bring civil war again,” he added.
Lebanon, straddling the Middle East’s main sectarian lines, was historically the region’s foreign-exchange hub into which deposits flowed, especially since 1997 when its currency was pegged to the dollar at 1,507.5 pounds.
But after a reckoning in August and September in which the cost of insuring Lebanon’s sovereign debt surged https://tmsnrt.rs/2MORZfM to a record high, things have changed.
Depositors, including the diaspora drawn by rates much higher than in Europe or the United States, are pulling funds in the face of Lebanon’s swelling twin deficits, inability to secure foreign funding, and unorthodox central bank efforts to attract dollar inflows.
Among Lebanon’s 6 million citizens, trust has worn thin.
Depositors can no longer easily withdraw dollars, and most ATMs no longer provide them, forcing people to turn to so-called parallel FX markets where $1 is worth more than the official peg.
“I am with the protesters,” said Walid al-Badawi, 43. “I have three children, I am a taxi driver, I work all day to get food for my kids and I can’t get it.”
Gaspard, the central bank’s former research head, said foreign exchange was easy even through Lebanon’s 15-year civil war. There was also always a balance of payments surplus – until 2011 when deficits began to grow, reaching $12 billion last year.
LOST RESOLVE AT BANKS
Three events precipitated the crisis of confidence that for years seemed inevitable: a series of central bank efforts since 2016 to keep growing deposits with rates of more than 11% on large deposits; a public sector pay hike last year that raised the budget deficit to more than 11% of GDP; low oil prices in recent years that have weakened Gulf allies.
In a report on Thursday, the IMF described Lebanon’s position as “very difficult,” adding “substantial new measures” are needed to protect it and reduce large deficits.
As dollars have dried up, banks have effectively stopped lending and can no longer make basic foreign-exchange transactions for clients, one banker said.
“The whole role of banks is to pour money into the central bank to finance the government and protect the currency,” he said. “Nothing is being done on the fiscal deficit because doing something will disrupt the systems of corruption.”
The resistance from banks has been subtle but telling given their central role in financing the government.
When Beirut proposed a $660 million reduction in debt service costs in its 2019 budget, banks never signed up to the idea. They have also been less enthusiastic about subscribing to Eurobonds including a planned $2-billion issuance later this month, officials said.
Without reform, “banks agree we can no longer support the public sector,” said Byblos Bank’s Ghobril.
(Reporting by Jonathan Spicer, Tom Perry and Samia Nakhoul; Additional reporting by Yara Abi Nader and Ellen Francis in Beirut and John Irish in Paris; Editing by Hugh Lawson) ((firstname.lastname@example.org; Reuters Messaging: email@example.com @jonathanspicer))
The political impasse in which Algeria has been mired for more than seven months would result in a sharp economic slowdown in the short term. This Algeria’s Political deadlock and economic breakdown that the World Bank forecasters have reached is by any means comprehensive but could be read as some sort of alert.
The institution expects non-hydrocarbon sectors, as well as all oil and gas-related activity, to run through an air hole this year; which should have some unavoidable consequences on the country’s GDP growth. In effect, in similar way to other developing countries, it is expected to come down to 1.3% in 2019 from 1.5% the previous year.
“Uncertainty policy is expected to lead to a slowdown in the non-hydrocarbon sector in 2019,” reads a World Bank report released last Thursday. The Bretton Woods institution has not failed to highlight the impact of the arrests of business leaders on investment morality grounds or lack of these, and more generally, on the economy. “Business leaders from various sectors were arrested in connection with corruption investigations, which has disrupted the economy due to sudden changes in the direction and supervision of these companies, as well as uncertainty over investment,” the same report said. Since the beginning of the crisis, a wave of arrests affected the business community, public institutions, banks and social bodies alike. This blocking situation had worsened over the weeks; appropriation sets did not meet, officials at the level of economic administration were careful not to take the slightest risk. That is to say how violent the shock wave was. The impact on the economy could be disastrous as the situation continues to worsen by the day. As such, the World Bank (WB) estimates that “the pre-election period also risks further delaying the fiscal consolidation process scheduled for 2019, increasing the budget deficit to 12.1% of GDP and increasing the risk of a more abrupt adjustment in the future.” For the WB, widening budget and current account deficits is almost inevitable. While the fiscal deficit would be unlikely to be reduced internally, “on the external front, the current account deficit is expected to widen to 8.1% of GDP, mainly due to a significantly larger trade deficit.”
Investment is being impacted
“As the course of political events is expected to have an impact on economic activity, it is also expected that more resources will be allocated to social measures, to the detriment of public investment spending,” the Bank predicts. The report, stating that “private sector activity and investment will be affected by political disruptions and an unfavourable business climate, as well as disruptions caused by delays in payment of workers in several industries.” This is the case, since the draft Finance Bill 2020 foresees a sharp decline in capital expenditure, to the tune of 20.1%, while operating expenses and social transfers are maintained as they are. WB experts are merely saying out loud what Algerian economists and operators are thinking, warning of a situation that could go along if solutions to the political impasse run out. “The delays at the end of the political impasse and political uncertainty could further damage the country’s economy, leading to increased imports and further dwindling foreign exchange reserves,” concludes the WB report. Moreover, macroeconomic indicators are unlikely to improve at any time under current political conditions.
Economic growth to only 1.9% in 2020
Moreover, against a background of falling capital spending and low morale among investors, the growth of the Algerian economy would be only 1.9% in the year 2020. A stagnation is due in particular to the “slow” growth of the hydrocarbons sector, combined with the contraction in economic activity, which has limited growth in non-hydrocarbon sectors, according to the WB’s economic monitoring report released on Thursday. “Growth in the hydrocarbon sector has been slow, with economic activity contracting by 6.5% and 7.7% in 2018 and the first quarter of 2019, respectively, partially off-sparing the effects of the slight increase in non-core growth 3.4% and 3.9% in 2018 and the first quarter of 2019, respectively,” the WB noted. The tiny increase in investment in the first half of the year (4.9%) was driven by public investment in construction, public works and hydraulics, as a result of the expansion of social housing programmes, the WB said. Furthermore, the institution believes that “the recent discovery of a new gas field suggests a rebound in gas production and exports, but only in the medium term, and if and only if the framework for investment in hydrocarbons lends it to it.” The World Bank is merely bringing water to the government’s mill, which has called the enactment of the new hydrocarbon law urgent.