It shows a score of 39, the same as last year. There seems to be little progress in improving control of corruption in the Middle East and North Africa region generally but the massive protests currently thronging the streets in mostly the republics types of states of the MENA could be taken as seeking for improvement. Excerpts of the Khaleej Times follow.
With a score of 71, the United Arab Emirates is the best regional performer, followed by Qatar (62). At the bottom of the region, Syria scores 13, followed by Yemen with a score of 15. Both countries are significant decliners on the CPI, with Yemen dropping eight points since 2012 and Syria dropping 13 points during the same period.
Lack of political integrity
The region faces significant corruption challenges that highlight a lack of political integrity. According to our recent report, Global Corruption Barometer — Middle East and North Africa, nearly one in two people in Lebanon is offered bribes in exchange for their votes, while more than one in four receives threats if they don’t vote a certain way.
In a region where fair and democratic elections are the exception, state capture is commonplace. Powerful individuals routinely divert public funds to their own pockets at the expense of ordinary citizens. Separation of powers is another challenge: independent judiciaries with the potential to act as a check on the executive branch are rare or non-existent.
To improve citizens’ trust in government, countries must build transparent and accountable institutions and prosecute wrongdoing. They should also hold free and fair elections and allow for citizen engagement and participation in decision-making.
The UAE has been rated least corrupt country, yet again, in the Middle East and North Africa by the Berlin-based Transparency International’s Corruption Perception Index (CPI) 2019.
Globally also, the country retained its 21st ranking, scoring 71 points.
At the bottom of the region, Syria scores 13, followed by Yemen with a score of 15. Both countries are significant decliners on the CPI, with Yemen dropping eight points since 2012 and Syria dropping 13 points during the same period.
“The region faces significant corruption challenges that highlight a lack of political integrity. According to our recent report, Global Corruption Barometer – Middle East and North Africa, nearly one in two people in Lebanon is offered bribes in exchange for their votes, while more than one in four receives threats if they don’t vote a certain way,” said Transparency International said in the report released on Thursday.
“To improve citizens’ trust in government, countries must build transparent and accountable institutions and prosecute wrongdoing. They should also hold free and fair elections and allow for citizen engagement and participation in decision-making,” it said.
With a score of 53, Saudi Arabia improved by four points since last year. In 2017, the Saudi Crown Prince Mohammad Bin Salman carried out an “anti-corruption” purge as part of his reform of the country.
Regionally, the UAE is followed by Qatar, Saudi Arabia, Oman, Jordan, Bahrain and Kuwait.
Globally, the top countries are New Zealand and Denmark, with scores of 87 each, followed by Finland (86), Singapore (85), Sweden (85) and Switzerland (85).
More than two-thirds of countries score below 50 on this year’s CPI, with an average score of just 43. Similar to previous years, the data shows that despite some progress, a majority of countries are still failing to tackle public sector corruption effectively.
“Governments must urgently address the corrupting role of big money in political party financing and the undue influence it exerts on our political systems,” said Delia Ferreira Rubio Chair Transparency International.
DUBAI (Reuters) – Economic growth in the Gulf will pick up this year and next, helped by Saudi Arabia’s investment program and Expo 2020 in Dubai, although the region will continue to feel the impact of oil output cuts, a Reuters poll showed on Wednesday.
The above picture is a FILE PHOTO: A car drives past a construction site of Riyadh Metro and the King Abdullah Financial District in Riyadh, Saudi Arabia, November 12, 2017. REUTERS/Faisal Al Nasser
OPEC and non-OPEC allies agreed in December to deepen output cuts, coming in addition to previously agreed curbs of 1.2 million bpd, and will represent about 1.7% of global oil output.
Saudi Arabia’s economy grew 0.3% in 2019, and is expected to grow 2.0% in 2020 and 2.2% in 2021, the poll of 26 economists, conducted Jan. 7-21, projected. A similar poll three months ago gave the same forecasts for 2020 and 2021 but estimated 0.7% growth in 2019.
“Saudi Arabia’s third-quarter GDP data, showing a fall of 0.5% year-on-year, was broadly as expected, with OPEC+ cuts constraining the contribution of the oil sector to economic growth,” Oxford Economics wrote in a research note. But diversification efforts “show signs of feedthrough”, it said.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said a stronger non-oil sector would help Saudi Arabia.
“Real GDP growth in Saudi should benefit from stronger non-oil activity as the investment program gains momentum. The drag from the oil sector should moderate in 2020 following a sharp reduction in oil output in 2019,” she said.
Median forecasts for growth in Oman, a relatively small Gulf crude producer, were significantly slashed. Analysts saw 1.0% growth in 2019, 1.7% in 2020 and 2.3% in 2021. Three months ago, Oman’s GDP was seen growing 1.3% in 2019, 3.2% in 2020 and 3.0% in 2021.
Oman’s ruler of 50 years, Sultan Qaboos bin Said, died earlier this month.
Maya Senussi, senior economist at Oxford Economics, said deeper oil production cuts agreed by OPEC and allies in December, and prospects for non-oil activity remaining weak, have weighed on Oman’s outlook.
Analysts forecast growth of 1.7% in 2019 for the United Arab Emirates, down from 2.2% in the poll three months ago. Its 2020 and 2021 estimates were unchanged.
The governments of Dubai and Abu Dhabi, the country’s two main emirates, have boosted spending to provide stimulus to their economies.
Dubai, which will host Expo 2020 this year, announced a record budget of around $18 billion this year, a 17% increase year on year, while Abu Dhabi announced in 2018 a three-year package of $13.6 billion.
Kuwait, which said last week it expects a budget deficit of 9.2 billion dinars ($30.3 billion) in the fiscal year starting on April 1, was forecast to see 0.5% economic growth in 2019, down from the 1% expected three months ago.
Kuwait’s GDP growth was revised down to 1.9% in 2020 from 2.2% three months earlier. Expectations for its 2021 growth, however, have risen to 2.6% from 2.3%.
GDP growth for Qatar, the world’s largest exporter of liquefied natural gas, was revised down to 0.9% in 2019 from 2.0% three months ago. Its 2020 forecast was cut to 2.1% from 2.4%, while its 2021 estimate was lifted to 2.5% from 2.3%.
Polling by Md Manzer Hussain; Writing by Yousef Saba and Nafisa Eltahir; Editing by Susan FentonOur Standards:
MENA accounted for 20% of total portfolio flows to emerging financial markets from 2016-2018.
São Paulo – The Middle East and North Africa (MENA) have stood out in capital flows in the last years, according to article published this Wednesday (15) on the International Monetary Fund Blog.
Written by Jihad Azoud, director of the Middle East and Central Asia Department at the IMF, and Ling Zhu, an economist at the same department, the article reads that since the global financial crisis of 2008, emerging countries have experienced a surge in capital flows and that this flow to the MENA nations have remained high compared to other emerging markets, but their composition has changed significantly.
The change includes a surge in portfolio flows – foreign investment in the financial and capital markets – and a simultaneous decline in foreign direct investment – those non-linked to the production sector, real estate acquisition etc. Portfolio and bank inflows to the region reached USD 155 billion over 2016–2018, which accounted for nearly 20% of total portfolio flows to emerging economies during those two years. The value was about three times the volume of flows to MENA over the previous eight years.
The IMF analysts find that most of the portfolio flows increase can be attributed to a more favorable global risk sentiment that is below its historical average. “Portfolio inflows are mostly driven by global ‘push’ factors, such as financial market risk sentiment,” the article reads that about two-thirds of the increase can be attributed to that.
Other factors are the fiscal and external deficits resulting from increased spending in such countries as Egypt, Jordan, Lebanon, and Tunisia, as well as lower revenue in oil exporters such as Bahrain and Oman after 2014. “Capital inflows have helped governments finance these deficits,” the IMF blog stresses. Moreover, the recent inclusion of Gulf Cooperation Council (GCC) countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates — in global bond and equity indices has also contributed to the rise in portfolio flows to the region.
However, the article warns that with global economic risks now on the rise, the region’s countries would be particularly vulnerable if global risk sentiment shifts — especially those with significant fiscal deficits, high debt burdens, and limited buffers. The blog goes on to say that the region is twice as sensitive to changes in global risk sentiment as compared with other emerging economie, which most likely stems from the higher perceived overall risk of the region, reflecting factors such as geopolitical uncertainties, volatile oil prices, and global trade tensions.
To strengthen their resilience to volatile flows, the blog reccomends improved policy frameworks not only in attracting but also in preserving flows, while helping mitigate the risk of outflows. As examples, the text mentions that Egypt has established inflation targeting and that Morocco has made progress in allowing more flexible exchange rates. As usual, IMF urges that reducing fiscal deficits are critical.
The article also stresses the need for structural reforms to strengthen financial system and macroeconomic steps to reduce the regional economies’ vulnerabilities.
This Moody’s negative rating outlook for the 2020 GCC sovereigns was published after it issued a little earlier, a similar downgrade for GCC corporates. But before we start wondering how relevant and whether, in this day and age, it applies to the MENA region and particularly to the Gulf sub-region, let us see who and what is behind Moody’s. It has by the way in 2018, citing as always, the still on-going and potentially worsening geopolitical event risks that play a crucial role in defining sovereign credit quality, come up with a particular set of ratings. Moody’s Corporation is the holding company that owns both Moody’s Investor Services, which rates fixed-income debt securities, and Moody’s Analytics, which provides software and research for economic analysis and risk management. Moody’s assigns ratings based on assessed risk and the borrower’s ability to make interest payments, and many investors closely watch its ratings.
ZAWYA GCC on January 9, 2020, posted the following articles.
The image above is used for illustrative purpose. A screen displays Moody’s ticker information as traders work on the floor of the New York Stock Exchange January 20, 2015. REUTERS/Brendan McDermid
GCC sovereigns’ 2020 outlook is negative, says Moody’s
Negative outlook reflects slow progress on fiscal reforms, weak growth and higher geopolitical risks.
Moody’s Investors Service said in a report that the outlook for sovereign creditworthiness in the Gulf Cooperation Council (GCC) in 2020 is negative.
The negative outlook reflects slow progress on fiscal reforms at a time of moderate oil prices, weak growth and higher geopolitical risk, the ratings agency said.
“The pace of fiscal consolidation will remain slow in the GCC in 2020 and fiscal strength will continue to erode in the absence of significant new fiscal measures and reforms,” said Alexander Perjessy, a Moody’s Vice President – Senior Analyst.
“This will be exacerbated by existing commitments to limit oil production, which will reduce government revenue,” Perjessy added.
The ratings agency expects a further gradual erosion in GCC credit metrics as oil prices remain moderate over the medium-term. It also pointed that lower oil revenue available to fund government spending will constrain growth in the non-oil sector which will, in turn, discourage governments from undertaking more fiscal tightening.
Moody’s sees the region’s geopolitical risk as higher and broader in nature than in the past, amid ongoing tensions between the United States and Iran.
Moody’s: 3 factors behind GCC sovereigns’ 2020 negative outlook
GCC’s geopolitical risk is higher in nature than in the past.
By Staff Writer, Mubasher
Moody’s Investors Service explained the factors which led to the negative outlook for sovereign creditworthiness in the Gulf area for the year 2020.
A recent report by Moody’s showed that the slowdown in the development of fiscal reforms at a time of reasonable oil prices contributed to the outlook, along with weak growth and higher geopolitical risk.
Further gradual erosion in GCC credit metrics is expected by Moody’s which relied in their outlook on the moderate oil prices over the medium-term.
Moody’s vice president – senior analyst, Alexander Perjessy, highlighted: “The pace of fiscal consolidation will remain slow in the GCC in 2020 and fiscal strength will continue to erode in the absence of significant new fiscal measures and reforms.”
Perjessy added, “This will be exacerbated by existing commitments to limit oil production, which will reduce government revenue.”
Growth in the non-oil sector will be constrained by lower oil revenue available to fund government spending; this will discourage governments from undertaking additional fiscal tightening.
Moody’s noted that “the region’s geopolitical risk is higher and broader in nature than in the past amid ongoing tensions between the US and Iran.”
At its December 2019 12th edition in Dubai, the Arab Strategy Forum affirmed that a Second Great Recession highly unlikely: Report. This gathering run under the theme of ‘Forecasting the Next Decade 2020-2030’ concluded that after all, it’s business as usual with no ad-hoc surprises at all.
DUBAI — The global economy is not likely to witness another Great Recession-style collapse, despite several indicators to the contrary in recent months, according to a newly-published report by the Arab Strategy Forum in partnership with Good Judgement Inc., the world’s leading geopolitical and economic forecasting institution.
Titled ‘11 Questions for the Next Decade’, the wide-ranging and far-reaching findings and themes of the report, will be discussed in depth by former ministers, decision-makers and politico-economic thought leaders, including former US Vice President Dick Cheney, at the 12th edition of the annual Arab Strategy Forum in Dubai on Dec. 9 at the Ritz Carlton, Dubai International Financial Centre.
The ‘state of the world’ style report– tackles 11 vital mega-trends and questions that will define the global social, political and economic landscape in the 10 years ahead. Unlike previous editions, this year’s report looks to predict the future leading up to 2030 – a crucial time for many Middle Eastern economies whose visions are set to come to fruition by that year.
‘11 Questions for the Next Decade’ analyses 11 major political and macro-economic situations – or ‘mega-trends’ as the report terms them – and their likely consequences to determine where the world is headed, come 2030. Topics covered range from the global recession to the fragmentation of superpowers and Brexit to the Iranian regime and America’s anticipated fall from dominance, to the emerging US-China tech war and the prospective ‘splinternet’, water scarcity in the region and the growing crop of gas fields in the East Mediterranean region.
Qualitative and quantitative feedback and data was garnered for the report’s 11 sections following rounds of discussions on Good Judgement’s online platform, with a series of ‘ignition questions’ posed to ‘Superforecasters’ – 150 experts from diverse backgrounds, such as political scientists, economics researchers, scholars, and subject-matter experts in professions ranging from finance to intelligence, to management and medicine. The ignition questions for each topic seek answers to the issues at the heart of major economic change in the years ahead. The Superforecasters’ answers serve as indicators and monitors of predicted change based on the outlined global mega-trends.
Mohammad Abdullah Al Gergawi, President of the Arab Strategy Forum, said: “The report provides answers to the most pressing questions today, these outcomes will have a significant impact on regional and global policies. It explores a range of scenarios that will support the decision-makers of today and tomorrow to guide progress and prosperity for generations to come.
“Unlike previous years, this year’s reports predict the future of the region and the world over the next decade in the context of the current events that will have a major impact. They provide an up-to-date analysis of the increasing need for decision-makers to understand future scenarios on which to base their plans.”
As the world’s first platform for forecasting geopolitical and economic events, both regionally and globally, and targeting the most influential leaders and decision-makers in the Arab world and beyond, the Arab Strategy Forum will provide invaluable insights from the world’s foremost thought leaders on the crucial topics addressed in the report and elsewhere. Below is a list of the mega-trends, their related ignition questions, and a brief summary of the findings from the ‘11 Questions for the Next Decade’ report.
• Will the world avoid another Great Recession through 2030?
Based on current global economic performance records and data from the last 100 years of economic cycles, the report sought to find out whether the next recession will be a repeat of the Global Financial Crisis / Great Recession (2007-2009) or whether we are likely to see a return to an earlier pattern of a brief economic downturn followed by resurgent and steady growth.
The report’s Superforecasters said there is a 76 per cent chance that the world will not undergo another global financial crisis similar to the one in 2007 in the next decade, citing central banks’ improved technological ability to adapt and steer skidding economies out of difficulty. In their analysis of the last 100 years’ of business cycles, the Superforecasters concluded that the Great Recession was an outlier rather than the expected norm.
• Will China, Russia, or a G7 country leave the World Trade Organization by 2030?
Considering the emerging tendency of two, or a group of countries, setting out to establish new regional trading systems, such as the US-backed Trans-Pacific Partnership or the Russian-backed European-Asian Economic Union, the report noted that such new trading entities pose a populist threat to long-established global trading systems.
It goes on to rule out the possibility of China, Russia or one of the G7 countries withdrawing from the World Trade Organization by 2030, as doing so would cost more than the gains are likely to be worth in the long run. However, considering the relentless pressure on the WTO in the face of populism, the post-World War II trading body faces a big challenge in maintaining its status and platform in the next 10 years.
• Will China, Russia, the US, or the EU lose 0.5% or more of its territory or population before 2030?
After the fall of empires in the 20th century, the question lingers over whether countries and blocs will fragment in the 21st century. The Superforecasters anticipate a 5% likelihood that the EU will lose 0.5% or more of its territory or population before 2030, a 2% likelihood that Russia or China will, and 1% likelihood that the United States will. Though the uncertainties and problems hanging over the United Kingdom are mainly considered ‘peaceful’, market volatility and decreased consumer confidence could have an impact on the EU’s territory and population in the next decade. The Superforecasters also said that a split or fragmentation in China or Russia, will only occur through a violent disruption.
• Will the US economy be ranked 1st, 2nd or 3rd in 2030?
Despite being the largest economy in the world since the beginning of the 20th century, the US’s position as the world’s number one is under threat from the formation of a multipolar system and the emergence of several countries and regions that contribute today to the international community.
The report claims that there is a 65 per cent chance that the US will still be the world’s largest economy a decade from now, and a 33 per cent likelihood it will be second, after China.
The most prominent countries competing with the United States, in terms of nominal GDP, the report adds, are China, the European Union bloc, and India. And, as the US economy shrinks to the size of other countries, it will be less able to influence other nations of the world.
• Will OPEC’s share of global crude oil production remain above 33% in 2030?
The Organization of Petroleum Exporting Countries (OPEC) currently holds a share of about 40 per cent of the world’s crude oil production. But the future of the organization and its domination is likely to be called into question, with the emergence of hydraulic fracturing and new oil discoveries outside the Middle East and North Africa.
There is a 90 per cent chance that OPEC will supply more than a third of the world’s crude oil supply in 2030. However, its fiscal revenue is likely to result in a decline in its production. Given its resilience and adaptation to multiple challenges in past decades, including wars, revolutions and global recessions, the organization is viable in a carbon-free world, but new and innovative adaptation measures are needed later, the report pointed out.
• Will a cyberattack shut down a major infrastructure system in a G7 country for 1+ days before 2030?
The Superforecasters see a 66 per cent likelihood of a cyberattack shutting down a major infrastructure system in a G7 country for at least one day before 2030. Outside of the G7, there are countries perhaps more vulnerable. “It will be worth monitoring these situations as harbingers of larger-scale attacks elsewhere. For instance, in the Philippines, government hearings recently raised concerns that China could remotely ‘turn off power’ in the country,” the report noted.
• Will Lebanon be involved in a major military conflict by 2030?
After the discovery of the East Mediterranean gas fields off the coast of Cyprus, Lebanon and Egypt, questions have arisen over whether the East Mediterranean gas fields will enhance the stability of the region or pose a security risk. The report said there’s a risk that offshore gas fields could escalate tensions between nations over disputed drilling rights, but potential energy revenues are worthwhile, and will lead to a strengthening of the region’s economic stability, as well as the internal stability of the concerned countries and reduce risks of war.
• Will water scarcity cause a deadly conflict between Jordan & Israel, Egypt & Ethiopia, or Turkey & Iraq before 2030?
Water scarcity is unlikely to drive any regional conflict in the MENA region over the next decade, the report stated. There is a small, 1 per cent chance of a conflict on the flow of water between Jordan and Israel, according to the Superforecasters. Meanwhile, the chance of a conflict between Egypt and Ethiopia or Turkey and Iraq during the next decade will reach 3per cent.
• China-US tech war and peace
Will a ‘splinternet’ – with one Internet led by the US and one led by China – be avoided as of 2030?
The Superforecasters offer an 80 per cent chance that a ‘splinternet’ – one Internet led by the United States and one led by China — will not be in place by 2030. “Information will continue to flow across global networks, even as other types of political or ideological information will be blocked,” the report pointed out.
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) ((email@example.com; Reuters Messaging: firstname.lastname@example.org @jonathanspicer))
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