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Economic and Governance Risks to the MENA Region

Economic and Governance Risks to the MENA Region

Economic and Governance Risks came as a no surprise assessment of today’s as well the immediate future of the MENA region. The inefficient state of most countries characterizes all of their public management and related corollaries: i.e., internal violence for some and external dependence for most. Even in the favourable assumption of relatively stable of the latter ones’ authorities, these prove powerless to achieve the objectives they have set themselves, because of the inefficiency of their administration and when these manage to achieve their objectives, it is at a high cost. Here is that Economic and Governance Risks to the MENA Region.

Exogenous factors, such as geo-economic division, climate change and technological threats all pose a particular risk to MENA, but so, too, do hazards that are more regional in nature. According to respondents in the Middle East and North Africa to the World Economic Forum’s Executive Opinion Survey, the top two risks across the region for doing business are “energy price shock” and “unemployment or underemployment.” These risks are largely economic in nature and affected by the health of governance in the region. Similarly, the number five risk, (“fiscal crises”), the number seven risk (“unmanageable inflation”) and the number 10 risk (“failure of financial mechanism or institution”) follow the same pattern of being largely economic in nature and potentially governance-driven.

The top risk, “energy price shock”, comes at a time when some countries have taken steps towards diversification, but the region is still largely a hydrocarbon economy, heavily reliant on revenue from this sector. Oil prices increased substantially between 2017 and 2018, from around USD 50 to USD 75. This represents a significant fillip for the fiscal position of the region’s oil producers, with the IMF estimating that each USD 10 increase in oil prices should feed through to an improvement on the fiscal balance of three percentage points of GDP. However, vulnerabilities to swings in oil prices have not disappeared and are particularly pronounced in countries where government spending is rising. This group includes Saudi Arabia, which the IMF estimated in May 2018 had seen its fiscal breakeven price for oil — that is, the price required to balance the national budget — rise to USD 88, 26 percent above the IMF’s October 2017 estimate and also higher than the country’s medium-term oil price target of USD 70 – USD 80.

It is no surprise, then, that Saudi Arabia remains one of five countries in the region that rank “energy price shock” as the top risk to doing business in the survey, along with Bahrain, Kuwait, Oman and Qatar.

The World Economic Forum in partnership with Marsh & McLennan Companies and Zurich Insurance Group released its Middle East and North Africa Risks Landscape Report, which uses data from the Global Risks Report 2019 and the Regional Risks for Doing Business 2018.

Click here to download the full briefing: Middle East and North Africa Risks Landscape Report >>

Click here to explore additional insights from Guy Carpenter >>

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Lebanon reforms on a sound path but must not stop

Lebanon reforms on a sound path but must not stop

Reuters BUSINESS NEWS in an article dated June 28, 2019, informs that the World Bank stated: Lebanon reforms on a sound path but must not stop.

BEIRUT (Reuters) – Lebanon has taken a sound path with reforms in its 2019 draft budget and power sector but it will have to keep going, World Bank MENA vice president Ferid Belhaj said on Friday in Beirut.

FILE PHOTO: Ferid Belhaj, World Bank vice-president for the Middle East and North Africa, speaks during an interview with Reuters at Africa 2018 Forum at the Red Sea resort of Sharm el-Sheikh, Egypt December 8, 2018. REUTERS/Amr Abdallah Dalsh

The bank and other donors helped arrange pledges of $11 billion in soft loans and aid at a Paris conference last year to build new infrastructure. But the money depends on the Lebanese government launching reforms it has put off for years and tackling its huge debt burden.

“In general … we are optimistic, but at the same time our optimism is cautious because of the economic situation in the region,” Belhaj was cited as saying in a statement from Lebanese Prime Minister Saad al-Hariri’s office after the two met.

Parliament is debating the 2019 draft budget approved by the cabinet last month, a critical test of Lebanon’s will to enact reforms. Leaders have warned of a financial crisis if there are no changes.

The budget aims to cut the deficit to 7.6% of gross domestic product from 11.5% last year. Lebanon has one of the world’s largest public debt burdens at 150% of GDP.

Hariri plans to use the funds from the Paris donor meeting for a 10-year capital investment program that would boost low growth. The country also has plans for about 250 projects which include transport, water and power sectors.

International Monetary Fund officials, who also met Hariri on Friday, urged Lebanon to speed up the process of implementing the projects and program, the premier’s office said.

“Lebanon is going down a sound path when it comes to the reforms at the level of the budget and electricity … but the reforms do not end. They are continuous,” Belhaj said.

The government approved an electricity plan in April that aims to boost generation capacity and bring down subsidies straining state finances.

Reporting by Ellen Francis; Editing by Catherine Evans and Raissa Kasolowsky


Our Standards: The Thomson Reuters Trust Principles.

Making sure there’s ‘No Lost Generation’ among Millennials

Because it is felt that “Young people are graduating with no clue on how to implement what they have learned,” the UNICEF is making sure there’s ‘No Lost Generation’ among millennials.

By Mariam Nabbout 2019-06-24

The Middle East is plagued with some of the highest unemployment rates among the up-and-coming generation. One reason behind this could be that most education systems in the region do not link what students learn with the knowledge they actually need in the future. 

However, it seems that’s about to change thanks to the efforts of individuals and organizations who are tirelessly working to bridge the gap between learning and earning. This specific issue is at the center of the region’s third annual “No Lost Generation Tech Summit,” which is set to be held in Jordan’s capital Amman on Tuesday and Wednesday. 

The two-day event is primarily organized by UNICEF’s regional office for the MENA region and NetHope – an NGO “eager to make a difference in this world through technological innovation.” It is also “supported by the steering committee for youth from the region, and representatives from the International Labor Organization, the International Rescue Committee, Mercy Corps, the Norwegian Refugee Council, UNESCO, UNHCR and World Vision.”

The summit focuses on presenting tech-enabled solutions attemped to link learning and earning among youth from vulnerable communities across the region. 

The event’s packed agenda is “almost entirely developed and managed by young people who have all pioneered ways to bridge the gap between young people’s schooling and employment.” (These juniors were selected by involved committees after applying for various roles.)

Speaking to StepFeed, a few of these bright young participants told us more about the ambitious initiative and what it means for youth across the Arab world. 

“What makes this summit special is its impact on youth”

Balqees Shahin Al Turk, a 22-year-old Jordanian, has been participating in youth engagement programs and events with UNICEF and other NGOs since 2016. When she learned about this year’s Tech Summit, she immediately applied for a leading role. 

“What makes this summit special is its impact on youth, since youth engagement is very high pre, during and post-summit,” Shahin explained.

There are 75 youngsters from across the MENA region working on this summit, she says. The fact that people her age are organizing such an event and have their voices heard among adults is a boost of self-confidence and energy to work harder.

“The rate of unemployment in the MENA region is about 30% although most of the MENA populations is composed of youth,” which Shahin finds disappointing. A main problem, according to her, is the gap between what young people learn and what real work environment requires. 

“Young people are graduating with no clue on how to implement what they have learned so its quite important to work on minimizing this gap first by figuring out that there is a problem and second by talking about it and trying to find solutions for this and that’s what the summit is about,” she explained. 

“I think the impact on adolescents and youth after the NLG Tech Summit will be wonderful”

For Syrian teens – and those a bit older – it’s not easy to cope with all that’s been lost. “This summit is very important for me as a young person because I have lost a lot of important things like education and my country Syria because of the war,” Saber Al-Khateeb, a 22-year-old Syrian and one of the representatives of youth at the NLG Tech Summit, said.

The summit will bring together “youth, private sector companies, development and humanitarian experts, academic institutions and donors to leverage technology and cross-sector collaboration to connect learning to earning for young people in the region, particularly those affected by the crises in Syria and Iraq,” he explained. 

Al-Khateeb remains hopeful when it comes to learning-to-earning solutions, as he believes proper implementation will lead to a decrease in unemployment rates. 

NLG’s young participants are here to inspire future generations

Speaking to StepFeed, 24-year-old Palestinian Shahenaz Monia, another young participant in the summit, said the gap between learning and earning should be reduced before unemployment rates skyrocket. 

“Never underestimate the power of any opportunities to get more experience,” as these, in her belief, will allow anyone to enhance and hone their skills.

The two-day event will be packed with people from different backgrounds, and with divergent experiences and success stories, which should be interesting and educational to young people.

“Passing through a hard and long way doesn’t mean you are wrong,” Monia said. “If you believe in something work hard to make it true. It’s okay to feel nervous, it only means you are stretching out of your comfort zone,” she continued. 

Costs of Corruption running deep in the MENA

Costs of Corruption running deep in the MENA

The IMFBlog on May 28, 2019, is about a world phenomenon that seems to still be present in all walk of life throughout the world. The Costs of Corruption running deep in the MENA, have been amplified by the hydrocarbon-related rentier economies to a point where only a defossilisation of the respective economies could somehow reduce their extent. In the meantime, costs of corruption running deep in the MENA seem to go unattended to. Anyway here is this IMFBlog article.

Corruption and Your Money

The costs of corruption run deep. Your taxpayer dollars are lost in different ways, siphoned off from schools, roads, and hospitals to line the pockets of people up to no good.

Equally damaging is the way it corrodes the government’s ability to help grow the economy in a way that benefits all citizens.

And no country is immune to corruption. Our Chart of the Week from the Fiscal Monitor analyzes more than 180 countries and finds that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. Also, when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes.

The chart shows that overall, the least corrupt governments collect 4 percent of GDP more in tax revenues than countries at the same level of economic development with the highest levels of corruption.

A few countries’ reforms generated even higher revenues. Georgia, for example, reduced corruption significantly and tax revenues more than doubled, rising by 13 percentage points of GDP between 2003 and 2008. Rwanda’s reforms to fight corruption since the mid-1990s bore fruit, and tax revenues increased by 6 percentage points of GDP.

These are just two examples that demonstrate that political will to build strong and transparent institutions can turn the tide against corruption. The Fiscal Monitor shines a light on fiscal institutions and policies, like tax administration or procurement practices, and show how they can fight corruption.

The costs of corruption run deep.

Where there is political will, there is a way

Fighting corruption requires political will to create strong fiscal institutions that promote integrity and accountability throughout the public sector.

Based on the research, here are some lessons for countries to help them build effective institutions that curb vulnerabilities to corruption:

Invest in high levels of transparency and independent external scrutiny. This allows audit agencies and the public at large to provide effective oversight. For example, Colombia, Costa Rica, and Paraguay are using an online platform that allows citizens to monitor the physical and financial progress of investment projects. Norway has developed a high standard of transparency to manage its natural resources. Our analysis also shows that a free press enhances the benefits of fiscal transparency. In Brazil, the results of audits impacted the reelection prospects of officials suspected of misuse of public money, but the impact was greater in areas with local radio stations.

Reform institutions. The chances for success are greater when countries design reforms to tackle corruption from all angles. For example, reforms to tax administration will have a greater payoff if tax laws are simpler and they reduce officials’ scope for discretion. To help countries, the IMF has built comprehensive diagnostics on the quality of fiscal institutions, including public investment management, revenue administration, and fiscal transparency.

Build a professional civil service. Transparent, merit-based hiring and pay reduce the opportunities for corruption. The heads of agencies, ministries, and public enterprises must promote ethical behavior by setting a clear tone at the top.

Keep pace with new challenges as technology and opportunities for wrongdoing evolve. Focus on areas of higher risk—such as procurement, revenue administration, and management of natural resources—as well as effective internal controls. In Chile and Korea, for example, electronic procurement systems have been powerful tools to curtail corruption by promoting transparency and improving competition.

More cooperation to fight corruption. Countries can also join efforts to make it harder for corruption to cross borders. For example, more than 40 countries have already made it a crime for their companies to pay bribes to gain business abroad under the OECD anti-corruption convention. Countries can also aggressively pursue anti–money laundering activities and reduce transnational opportunities to hide corrupt money in opaque financial centers.

Curbing corruption is a challenge that requires persevering on many fronts, but one that pays huge dividends. It starts with political will, continuously strengthening institutions to promote integrity and accountability, and global cooperation.

Related Links:
Corruption Disruption

Popular Posts

Tackling corruption in government could save $1 trillion

Tackling corruption in government could save $1 trillion

The International Monetary Fund (IMF), keeps on pressing on all economic and policy issues of the day in every country. Doing so for all these years, it has, in the end, amassed such knowledge and experience that enabled it to have a worldwide view of the latest trends. Tackling corruption in government could save $1 trillion in taxes, but not only that as we were recently told, it could also resolve many of the plethora of all related issues throughout all regions in the developing and developed world alike. A point in case is elaborated on this particular article that is republished here for its obvious importance, especially for those developing countries of the MENA region. 

Tackling Corruption in Government

By Vitor Gaspar, Paolo Mauro and Paulo Medas

No country is immune to corruption. The abuse of public office for private gain erodes people’s trust in government and institutions, makes public policies less effective and fair, and siphons taxpayers’ money away from schools, roads, and hospitals.

While the wasted money is important, the cost is about much more. Corruption corrodes the government’s ability to help grow the economy in a way that benefits all citizens.

But the political will to build strong and transparent institutions can turn the tide against corruption. In our new Fiscal Monitor, we shine a light on fiscal institutions and policies, like tax administration or procurement practices, and show how they can fight corruption.

Political will can turn the tide against corruption.

Corruption helps evade taxes

We analyze more than 180 countries and find that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. Also, when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes.

We show that overall, the least corrupt governments collect 4 percent of GDP more in tax revenues than countries at the same level of economic development with the highest levels of corruption.

A few countries’ reforms generated even higher revenues. Georgia, for example, reduced corruption significantly and tax revenues more than doubled, rising by 13 percentage points of GDP between 2003 and 2008. Rwanda’s reforms to fight corruption since the mid-1990s bore fruit, and tax revenues increased by 6 percentage points of GDP.


Corruption also prevents people from benefiting fully from the wealth created by their country’s natural resources. Because the exploration of oil or mining generates huge profits, it creates strong incentives for corruption. Our research shows that resource-rich countries, on average, have weaker institutions and higher corruption.

Corruption wastes taxpayers’ money

The Fiscal Monitor shows that countries with lower levels of perceived corruption have significantly less waste in public investment projects. We estimate that the most corrupt emerging market economies waste twice as much money as the least corrupt ones.

Governments waste taxpayers’ money when they spend it on cost overruns due to kickbacks or bid rigging in public procurement. So, when a country is less corrupt, it invests money more efficiently and fairly.

Corruption also distorts government priorities. For example, among low-income countries, the share of the budget dedicated to education and health is one-third lower in more corrupt countries. It also impacts the effectiveness of social spending. In more corrupt countries school-age students have lower test scores.

Corruption is also a problem in state-owned enterprises, such as some countries’ oil companies, and public utilities like electric and water companies. Our analysis suggests that these enterprises are less efficient in countries with high levels of corruption.

Where there is political will, there is a way

Fighting corruption requires political will to create strong fiscal institutions that promote integrity and accountability throughout the public sector.

Based on the research, here are some lessons for countries to help them build effective institutions that curb vulnerabilities to corruption:

Invest in high levels of transparency and independent external scrutiny. This allows audit agencies and the public at large to provide effective oversight. For example, Colombia, Costa Rica, and Paraguay are using an online platform that allows citizens to monitor the physical and financial progress of investment projects. Norway has developed a high standard of transparency to manage its natural resources. Our analysis also shows that a free press enhances the benefits of fiscal transparency. In Brazil, the results of audits impacted the reelection prospects of officials suspected of misuse of public money, but the impact was greater in areas with local radio stations.

Reform institutions. The chances for success are greater when countries design reforms to tackle corruption from all angles. For example, reforms to tax administration will have a greater payoff if tax laws are simpler and they reduce officials’ scope for discretion. To help countries, the IMF has built comprehensive diagnostics on the quality of fiscal institutions, including public investment management, revenue administration, and fiscal transparency.

Build a professional civil service. Transparent, merit-based hiring and pay reduce the opportunities for corruption. The heads of agencies, ministries, and public enterprises must promote ethical behavior by setting a clear tone at the top.

Keep pace with new challenges as technology and opportunities for wrongdoing evolve. Focus on areas of higher risk—such as procurement, revenue administration, and management of natural resources—as well as effective internal controls. In Chile and Korea, for example, electronic procurement systems have been powerful tools to curtail corruption by promoting transparency and improving competition.

More cooperation to fight corruption. Countries can also join efforts to make it harder for corruption to cross borders. For example, more than 40 countries have already made it a crime for their companies to pay bribes to gain business abroad under the OECD anti-corruption convention. Countries can also aggressively pursue anti–money laundering activities and reduce transnational opportunities to hide corrupt money in opaque financial centers.

Curbing corruption is a challenge that requires persevering on many fronts, but one that pays huge dividends. It starts with political will, continuously strengthening institutions to promote integrity and accountability, and global cooperation.

Watch a conversation with the authors:

Related links:
Shining a Bright Light into the Dark Corners of Weak Governance and Corruption
Corruption Disruption
Corruption in Latin America: Taking Stock
MENA debt boom leading to private sector growth

MENA debt boom leading to private sector growth

Mouayed Makhlouf says governments have become more receptive to private sector involvement in economies as debt levels have grown reports Zawya #financial services.

Zawya produced this article dated March 12, 2019, about how the MENA debt boom leading to private sector growth would afterall result in a more sustainable development model.

MENA debt boom provides a route for private sector growth: IFC chief

By Michael Fahy, ZAWYA

Governments in the Middle East are becoming more receptive to growing private sector involvement in their economies because public sector debt in many markets is ballooning, an official from the World Bank’s International Finance Corporation (IFC) has said.

Speaking on an investors’ panel debate at the Global Financial Forum in Dubai on Monday, the IFC’s Middle East and North Africa (MENA) director, Mouayed Makhlouf, said: “For the first time, because of the massive rise in public debt across the region, we see a difference. Our narrative with these governments has changed.  Now, they are coming to us and they are saying ‘can you help us with the reforms?'”

General view of the world’s tallest building Burj Khalifa in Dubai, United Arab Emirates, December 22, 2018. Image for illustrative purposes. REUTERS/Hamad I Mohammed

Makhlouf said that the MENA region needs to create 300 million new jobs – “basically, double the population” by 2050 due to the burgeoning youth population in the region, and that Egypt alone needs to create around 700,000 jobs per year, although he said it is MENA’s fastest growing economy currently, with GDP growth of 5.3 percent, compared with a regional average of around 2-3 percent.

“The social contract in MENA is as such where most of the services (are) provided by the public sector.  But what you have ended up with… is a huge public debt that has been rising for the past few years,” he said, adding that debt-to-GDP ratios stand at around 96 percent in Egypt, 97-98 percent in Jordan and 150 percent in Lebanon.

“For us, the main thing we need to find in this region are… growth and jobs.  And I really believe both of these things can only come through a larger private sector participation,” Makhlouf said.

In a separate panel on the outlook for the region’s banking sector, JP Morgan‘s Asif Raza said that the decline in oil prices that began in 2014 had created opportunities for international banks to advise governments that are looking to diversify on how to embark on “monetisation and privatisation” of assets.

Naveed Kamal, MENA head of corporate banking at Citi, said that governments had run up deficits as oil revenues fell, and had financed these through “various instruments where banks have been involved”.

“And we expect to see that continue over the next 2-3 years.”

Although total GCC fixed income issuance declined by 16 percent year-on-year to $145.3 billion in 2018 as oil prices rallied, according to Kamco Research, JP Morgan’s Raza said the current pipeline is “huge”.

A faster flow

Raza said that at this stage last year, “over $15.4 billion worth of issuance was done in the MENA region – this year, it’s $28 billion”.

He added that in 2018, “the loan market was (at an) all-time high in this region”.  Figures published earlier this month from Acuris showed that syndicated loan activity in the MENA region last year outstripped bond issuance – with $133 billion of syndicated loans issued, compared to $89.5 billion in bonds.

Raza said that at the top end of the corporate banking market, “there’s lots of activity still happening”.

“There’s still quite a decent pipeline of financing and refinancing,” he said.

However, Citi’s Kamal argued that the market has been much tougher for SMEs in recent years.

“I believe that there is room for improvement for all countries in the region as far as creating the right balance for SMEs (is concerned),” he said.

He said that “time and again” in tougher economic times large corporates, government-related entities and even government departments have delayed payments to SMEs, which causes cashflow problems and affects their ability to repay creditors.

Quick exits

“And some of the legal framework that surrounds the corporate sector – we all know about bounced cheques and the consequences of that.  In summary, what happens is SMEs can’t stay back in a number of cases (to) fight through these cycles.  So, we see skips, people leave and that does not leave a very strong impact as far as consumer confidence is concerned.”

Yet funding shortages for private sector firms can also create opportunities – not least for the region’s private equity sector, according to Karim El-Solh.

Speaking on the investment panel, El-Solh said that his firm’s pipeline “has increased dramatically as a result of a lack of availability of funding for businesses elsewhere.

“The IPO market is not open; the bank liquidity has dried up so for us it’s an opportunity to come and be a provider of growth capital.  We are seeing more companies, better quality companies, we’re acquiring controlling stakes at lower valuations,” he said.

Makhlouf said more opportunities need to be created for the private sector, stating that levels of private sector involvement in the economy in the region lag behind other emerging markets.

“MENA region is only one-fifth in terms of private sector participation compared to Latin America,” he said.

© ZAWYA 2019

More Middle East billionaires during 2018-2023

More Middle East billionaires during 2018-2023

11 per cent growth will be seen in Middle East billionaires during 2018-2023.

Why the number of millionaires is set to rise in UAE

By Waheed Abbas / Dubai

March 7, 2019

The number of millionaires in Dubai and Abu Dhabi will increase from 440 last year to 511 in 2023 and from 192 to 223, respectively.

The number of millionaires in the UAE increased last year and this trend will continue over the next five years as growing investment opportunities will generate more millionaires locally as well as political and economic stability will also woo rich individuals and families from foreign countries, say researchers and analysts.

According to the latest report released by global consultancy Knight Frank, the number of millionaires, or high net worth individuals, in the UAE expanded 3 per cent to 53,798 last year from 52,344 in the previous year. The numbers are projected to grow 14 per cent to 61,292 by 2023. Similarly, the number of ultra-high net worth individuals (UHNWIs) – who own more than $30-million wealth – in the UAE grew from 672 in 2017 to 693 last year and will reach 799 by 2023.

The study predicted that the number of UHNWIs in Dubai and Abu Dhabi will increase from 440 last year to 511 in 2023 and from 192 to 223, respectively.

Issam Kassabieh, senior financial analyst at Menacorp, believes that the ultra-rich will continue to flock to the UAE in coming years.

“At the moment, Dubai is attractive for foreigners. Now, it is a place not just for good investments returns but also to stay for long term. Government is focusing on key sector so that the cash comes in and stays in the country through different measures such as longer visas and ease of doing business initiatives,” Kassabieh said.

“The UAE is an attractive place for foreign investors – financial markets are at an early stage and have a long way to go. Real estate was the first to anchor the economy and that brought foreign investors here. Going forward, the focus will be on more diverse sectors. Also, the ease of doing business chart shows the UAE is first in the region and also competitive globally,” he added.

“Dubai offers a full package – good quality of life, healthcare, education and investment opportunities. All these complement each other and attracts high net worth individuals to this country. In addition to that, diversity of population plays a big role in this,” said Kassabieh.

Knight Frank data revealed that Dubai and Abu Dhabi will witness higher growth in UNHWIs as compared to Manama and Riyadh.

Raju Menon, chairman and managing partner, Kreston Menon, said the number of millionaires will undoubtedly continue growing in the UAE in coming years.

“Whatever the business challenges or revenue decline the companies are facing today, it is temporary. We need to look at long-term of 5 to 10 years. Millionaires should grow here in the UAE because money is available here so the investment avenues will be opened. The UAE’s economy offer big opportunities,” he said.

Menon believes that most of the new millionaires will be homegrown mainly in retail, trading, healthcare, real estate, services and shipping sectors. 

Iyad Abu Hweij, Managing Director of Allied Investment Partners, said the UAE, home to over 9.4 million residents, remains an attractive destination for HNWIs in the region.

With investor and business friendly policies, world class infrastructure and a stable outlook, HNWIs are expected to continue to grow in numbers in the country over the next coming years. Such policies and initiatives have played an important role in bolstering the confidence of investors and attracting Foreign Direct Investments in the UAE, which in turn creates jobs for a highly talented workforce,”  Abu Hweij said

Additionally, the UAE, viewed as a regional startup hub and a digital leader, continues to boast more startups than any other country in the region. Naturally, such startups attract more venture capital and private equity investments locally than anywhere else regionally, he added.

“The UAE continues to provide solid investment opportunities for investors locally and globally, which, along with a rapidly developing financial services sector, has played a catalyst like role for the growth of HNWIs in the country.”

Regional performance

The number of millionaires in the Middle East with wealth below $30 million grew three per cent from 446,384 in 2017 to 459,937 last year. The number is projected to grow 18 per cent to 541,311 by 2023. Similarly, the ultra-high net worth individuals with more than $30m assets grew four per cent year-on-year to 8,301 last year. It’s estimated that the number will grow 20 per cent over the next five years to 9,997.

According to Knight Frank forecast, the number of billionaires in the region will grow from 89 last year to 99 by 2023.

Globally, the number of millionaires with less than $30 million assets are projected to expand from 19.6 million in 2018 to 23.4 million by 2023, an increase of 19 per cent. While ultra rich will increase 22 per cent during 2018 to 2023 from 198,342 to 241,053.

waheedabbas@khaleejtimes.com

Fossil Fuel-reliant economies into ‘stranded nations’

Fossil Fuel-reliant economies into ‘stranded nations’

Image: Shutterstock

Decarbonisation ‘could leave fossil-fuel economies stranded’

by Jonny Bairstow

Friday 22 February 2019

These are the findings of a new World Economic Forum study which shows the world’s sovereign wealth funds collectively own $8 trillion

Global decarbonisation could turn fossil fuel-reliant economies into ‘stranded nations’ unable to unlock the value of carbon-based assets and infrastructure.

These are the findings of a new World Economic Forum study, which shows the world’s sovereign wealth funds collectively own $8 trillion (£6.1tn) in assets but currently invest just 0.19% of this figure in green energy.

It says economies that are heavily dependent on fossil fuel resources with more than 10% of their total wealth based in carbon assets could become “stranded” – it says they must act now to develop the “human capital and economic diversification” to continue to thrive.

The report acknowledges some fossil fuel-dependent countries have already begun to diversify their economies for impending energy changes but notes progress is slow.

It says this could pose a serious problem because as much as three-quarters of energy is expected to come from green sources by 2050.

Maha Eltobgy, Head of Shaping the Future of Long-Term Investing, Infrastructure and Development at the WEF, said: “To protect their economic futures, countries whose economies rely on fossil fuels need to prepare now for the impending global shift away from these resources.

“The resource dependent, fossil-fuel-rich nations that have diligently-built large sovereign wealth funds to manage the economic challenges of the Age of Oil must now consider how to use this vast wealth to prepare for the Age of Green Energy.”

assets business carbon Change Climate fossil fuels investors r

Global trade war impacting the MENA region

Global trade war impacting the MENA region

Michael Fahy, Business journalist in the UAE and editor of zawya.com with his motto of “My views are both infrequent and my own”, wrote about the global trade war impacting the MENA region.

DP World’s Jebel Ali Port in Dubai, the United Arab Emirates (UAE). Image supplied by DP World. Image used for illustrative purpose.

MENA region will not escape impact of global trade war, says economist

Arab Bank’s Radwan Shaban said oil exporting nations provide 80 percent of region’s GDP

The Middle East and North Africa region is unlikely to escape the impact of a trade war, with the biggest potential impact coming from a decline in oil prices, according to the chief economist of Jordan’s Arab Bank.

Speaking on a panel debate on the global outlook for the MENA region, Arab Bank’s chief economist Radwan Shaban said that falling oil demand from China and other nations, as the result of a prolonged trade dispute, would be “a negative for the region”.

“This is a region in which, yes, we have oil exporting and oil importing countries, but in terms of numbers, oil exporting countries account for 80 percent of GDP of this region in 2018,” Shaban said. “Even the welfare of oil-importing countries is closely tied to oil-exporting countries through trade, tourism, FDI, foreign assistance – a whole bunch of factors.”

He said that oil importing countries such as Jordan witness lower trade, lower investment levels and lower assistance with Gulf neighbours if oil prices decline, which “translates into lower economic growth”.

Monica Malik, chief economist with Abu Dhabi Commercial Bank (ADCB), said that with oil prices maintaining a level above $70 per barrel since the second quarter of this year, “we are more optimistic” of the region’s prospects for growth.

She anticipates that higher revenues from oil will mean the government will enjoy a fiscal surplus in 2018, while Saudi Arabia will “substantially reduce” its deficit to under 5 percent of gross domestic product (GDP), although other nations such as Bahrain, Kuwait and Oman had been less progressive with their reforms.

“But I think with the GCC [Gulf Cooperation Council] support packages to Bahrain, we expect the pace of reforms there to accelerate. We’ve already had parliament approve their VAT law,” Malik said.

Both the United Arab Emirates and Saudi Arabia have shifted fiscal policy from consolidation towards growth, Malik said, and had given indications that they intend to continue doing so throughout next year.

In the UAE, she said the country has benefited from “a number of stimulus packages and support measures which aren’t just for short-term growth support but also to improve the business environment, to bring capital inflight, to bring foreign direct investment.”

“I think the critical driver of economic activity, non-oil activity, in the Gulf is government activity still. So, I think focused growth, supported by investments that will really improve the medium-term environment, will be positive for the private sector, though at this point it’s still weak and tightening monetary policy is one of the key headwinds.”

James McCormack, global head of sovereign and supranational ratings at Fitch Ratings, was less positive about Saudi Arabia’s fortunes.

“If you dig around the numbers a little bit, you see a big increase in oil revenues, which has been matched largely by increases in spending. And the concern there is the increases in spending are in current spending, not capital, so (it’s) a little bit more difficult to bring those back down when oil prices maybe come down,” he argued.

A widening gap
He said that the balance of the non-oil economy as a proportion of GDP was worsening.

“The deficit is getting bigger. So, this is really an oil story in terms of the fiscal recovery that we’re seeing in Saudi Arabia,” McCormack argued.

McCormack also said that he feared the trade dispute between the United States and China could be a prolonged one.

“I think it (dispute) is going to last longer, in part because of the fact that the U.S. has moved the goalposts – in fact, widened the goalposts a couple of times,” McCormack said.

He argued that some of the demands being made by the U.S. are considered to be “non-negotiable” by the Chinese government.

“I don’t see how we’re going to have a discussion that’s going to satisfy both sides. This has the potential to turn into something meaningful from a global macro sense,” McCormack argued.

Shaban said that a slowdown in global trade would hit the region in other ways. For instance, he said that Morocco is a significant supplier to Europe’s automotive sector, while in Egypt revenues from ships passing through the Suez Canal provide the country with an important source of foreign currency revenues.

“As global trade slows, that will affect the Suez Canal activity,” Shaban said.

(Reporting by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@refinitiv.com)

 

Recent economic results in Morocco

Recent economic results in Morocco

The most recent economic results in Morocco show a deceleration from last year. The north African country grew by 2.4% in the second quarter of 2018, down from 4.5% in the same period last year, according to the High Commission for Planning. The agriculture sector has been cited as the main reason for the decline; its output slowed from just over 18% last year to around 3%.

Oxford Business Group published this article dated October 29th, 2018, written by Jaime Perez-Seoane de Zunzunegui, Regional Editor for North Africa and The Americas.

How can Morocco revert its recent economic slowdown?

The bigger picture looks fairly stable, though. The central bank expects the country to end 2018 with growth of 3.5%, a substantial figure despite having registered 4.1% in 2017. Figures remain strong enough to keep up optimism, as indicated by the local business community in Oxford Business Group’s latest Business Barometer: Morocco CEO Survey.

Of the 106 CEOs surveyed between November 2017 and September 2018, almost three-quarters say they have positive or very positive expectations of local business conditions in the coming 12 months.

This sentiment is further strengthened by the number of business leaders indicating the likelihood of future investments: 77% say it is likely or very likely that their company will make a significant capital investment within the next 12 months.

Obstacles to becoming a regional hub

Of course, challenges to economic expansion remain. In fact, they are inevitable when a country is working to maintain considerable growth levels. There are a number of responses to the question of Morocco’s economic slowdown. Undoubtedly, diversification of productive sectors and partnering markets will be key, and government efforts to transform Morocco into a regional hub have long been under way.

In order to consolidate its position as a regional power, one area Morocco could enhance is its tax environment. With individual income tax capped at 38% and corporate tax at a maximum of 31%, coupled with a relatively complex local and national tax system, Morocco ranks 109th out of 137 countries in the total tax rate competitiveness category of the World Economic Forum’s Global Competitiveness Index 2017-18. Accordingly, 55% of survey respondents say that Morocco’s current tax environment (business and personal) is uncompetitive or very uncompetitive on a global scale.

In addition, access to credit remains challenging, at least for some companies. While 40% of business leaders characterise the ease of access to credit as easy or very easy, 38% find it difficult or very difficult. Opinions on financing are always difficult to capture in surveys, as each firm’s profile – including its size, expertise, access to market and needs – influences its response.

Nevertheless, we’ve seen increased efforts to make access to credit easier through non-traditional channels. For example, the country is in the process of approving a draft bill setting out the regulation of crowdfunding for both prospective investors and businesses, which is expected to provide a new source of funding to entrepreneurs, startups and other small businesses, many of which struggle to qualify for capital through traditional methods.

A third challenge worth mentioning – and one that is largely acknowledged by CEOs in our survey – is the lack of leadership. Leadership is identified by 47% of respondents as the type of skill in greatest need in Morocco. I’ve met with many business leaders during my visits to the country, and the absence of soft skills among the country’s institutions seems to be affecting the public and private sectors; nobody knows that better than the men and women running companies on a daily basis.

Auto production to drive industry

Despite the obstacles in the local business environment, CEOs are optimistic about the country’s dynamic local industry, with 55% citing automotives as the activity that is most likely to spearhead Morocco’s industrial acceleration in the short to medium term. In 2017 Morocco surpassed South Africa to become the continent’s leader in terms of vehicle production volumes, according to international media.

Estimates for 2019 forecast Morocco will grow less than in 2018, which is a reasonable prediction given the country’s recent performance. However, if trade with old and new partners continues to develop, opportunities are expected to be generated for local investors and companies. Determination from Morocco’s business leaders is there, and the challenges have been identified, which is an important first step to tackling them.

Some countries are far more unequal than others

Some countries are far more unequal than others

Three reasons some countries are far more unequal than others

By Sandy Brian Hager, City, University of London

The picture above is of Hyejin Kang / Shutterstock

Why do the richest 1% of Americans take 20% of national income, but the richest 1% of Danes only 6%? Why have affluent British people seen their share of national income double since 1980, while over the same period, the income share of wealthy Dutch hasn’t budged?

Technological change and globalisation act as powerful forces for income distribution, but these market processes cannot alone account for the continued range in top income inequality in different countries. After all, some of the most technologically advanced and globalised countries, such as Denmark and the Netherlands, are the ones that are the most equal.

To explain why some advanced capitalist countries are more unequal than others, we need to look beyond the market and explore the role of politics and power in shaping distributive outcomes.

Want to have a more equal society? In a critical review of recent research, I’ve found that the formula is surprisingly simple: tax the rich, vote for left-wing parties, implement electoral systems of proportional representation, and empower trade unions.

1. Tax levels

One key political factor is government policy, especially taxation. Countries that have made the biggest reductions to their top rates of income tax have seen the largest increases in top income shares. For example, in more equal France, the top rate in 2010 was only 10% lower than it was in 1950. Meanwhile, in the more unequal US it was 50% lower. At the company level, CEO pay tends to be much higher when the top income tax bracket is lower.

Tax policy plays a pivotal role in explaining top-end income inequality. But policies do not emerge out of thin air. These variations in the policies that influence distributive outcomes at the top result from social power relations, which have been shown to shape the evolution of top-end income inequality over time.

2. Politics

The formal political arena is one site where these power relations unfold. A recent study by Evelyne Huber, Jingjing Huo, and John Stephens studied the income share of the top 1% in postindustrial democracies from 1960 to 2012. They found that centre and right-wing governments in rich countries are consistently associated with increases in top income shares. Meanwhile, policies of left-wing governments generally reduce inequality at the top end.

The institutional design of the political system also matters. Electoral systems of proportional representation tend to favour left-wing parties, while systems that are led by majority rule favour right-wing ones. Certain institutional features, such as having presidents and bicameral legislatures encourage gridlock and empower special interests to block progressive policy reforms.

There are questions about the extent to which the institutional story can be generalised, but as Jacob Hacker and Paul Pierson show, it is crucial in explaining the spectacular rise of the super-rich in the US.

3. Trade unions

In addition to left-wing parties, strong trade unions act as a power check on top income shares. Unions can align with left-wing parties and push for egalitarian policies. Within the firm, unions can bargain to increase their wages and reduce the amount of revenue going to executive compensation and shareholder dividends.

One academic study found that unionisation decreased the compensation of top US executives by 12%. Another found that in US industries with higher levels of union membership, the gap between executive and non-executive pay was narrower. In the numerous cross-national statistical studies that I surveyed the rate of unionisation is one of the few variables consistently associated with lower top income shares.

Prompted in many ways by the pioneering efforts of Thomas Piketty and his collaborators, the study of top incomes has made remarkable progress in the past decade. But there is still room for further exploration.

The study of top incomes tends to be US-centric. There needs to be more in-depth analysis of the experiences of other countries. We need further research that investigates who the top 1% are in different countries, and how their political preferences compare to other segments of the population. We also need to explore in much greater detail the racial and gender dimensions of the income hierarchy in different countries.

Given the compelling evidence that living in highly unequal societies destroys our minds, our bodies, our relationships, our communities, and our planet, this is something we should all take seriously. The better the grasp we have of the causes of top-end income concentration in different countries, the more effective we will be in assessing what, if anything, can be done to slow or even reverse it.The Conversation

Sandy Brian Hager, Senior Lecturer in International Political Economy, City, University of London

This article is republished from The Conversation under a Creative Commons license. Read the original article.

MENA region’s Trends, Challenges and Opportunities

MENA region’s Trends, Challenges and Opportunities

The World Economic Forum latest views in The Arab World Competitiveness Report 2018 explores as it is noted, the MENA region’s trends, challenges and opportunities for its so called Arab countries. It explains how:
The Arab World is at a critical juncture, and while it has ambitious economic and social reforms meant all to bring significant economic change for the better to the area, it has failed mainly because of the apparent persisting inequalities that can potentially erode social cohesion.
Much was written about the economies of the MENA countries, and these as it is well known, have potential economic and political development in the region.  Furthermore and despite the high rate of growth in the petrodollar economies and their collateral, i.e. their fallout on their neighbouring countries in terms of remittances and other gains and earnings, the populations above all the youth segments of these remained exposed to a prevailing general underdevelopment.  With a skewed age distribution towards the young in all Arab countries, their respective governments appeared to be leading towards a significant economic, social and political burden with severe consequences for the stability of the region.

These economies are the most competitive in the Arab world

Yachts are seen at a dock at the Dubai Marina, surrounded by high towers of hotels, banks and office buildings, in Dubai, United Arab Emirates December 11, 2017. REUTERS/Amr Abdallah Dalsh – RC1D41223EB0

 

The United Arab Emirates is the Arab world’s most competitive economy, according to a new report by the World Economic Forum and the World Bank Group.

The UAE was ranked 17th on the latest Global Competitiveness Index (GCI) putting it ahead of Qatar (25th) and Saudi Arabia (30th) among regional economies.

A mixed picture

A handful of countries in the region have made efforts to reform and increase investments to improve competitiveness. However, in many respects the region continues to lag.

Overall competitiveness in Arab world economies has not changed significantly over the past decade and it remains less competitive than East Asia and Europe.

It’s important to note though that the region contains a hugely diverse set of economies – from some of the world’s richest countries, to countries devastated by conflict. Indeed, data couldn’t be collected in countries such as Iraq, Syria and Libya because of fragility, conflict and violence.

High youth unemployment, low levels of female labour force participation and social frustration are key challenges for economies in the Arab world. Diversification and the development of entrepreneurial freedom to increase opportunities for young people are urgently needed to prepare the region for the Fourth Industrial Revolution.

“The Middle East and North Africa region is brimming with talented young people, especially in technology,” said Philippe Le Houérou, IFC’s Chief Executive Officer. “By helping entrepreneurs to reach their potential, governments can support the creation of good jobs and drive technological innovation, making the lives of everyday people better.”

The top 10

The UAE, Qatar and Saudi Arabia take the top 3 spots, reflecting a general trend of resource-rich countries unaffected by conflict ranking much higher on the GCI.

  • United Arab Emirates

The UAE has improved its absolute assessment but fell one place in the most recent GCI because of larger gains by other countries.

The improvement highlights the resilience of the UAE economy, in part thanks to diversification. But the report flags that, to improve competitiveness, the country needs to speed up progress on spreading the latest digital tech and upgrading education.

 

  • Qatar

Qatar remains in second place, despite falling in the global rankings from 18th to 25th. A drop-in oil and gas prices was largely behind the slide, as this had a significant impact on its fiscal situation. From 2015 to 2016, public debt increased from 35.8% to 47.6% of GDP, while a fiscal surplus of 10.3% was replaced by a deficit of 4.07% over the same period.

However, infrastructure facilities and an efficient goods market remain areas of strengths.

Note: Both the survey and statistical data reflect the situation prior to the diplomatic crisis.

  • Saudi Arabia

Saudi Arabia’s performance has remained relatively steady – slipping one position. Stable institutions, good-quality infrastructure and a large market (the largest in the Arab world) are all areas of strength.

Saudi executives name restrictive labour regulations as the most problematic factor for doing business, while advancing the equality of education is another area for improvement.

  • Bahrain

The country has improved on a number of indicators in the last year, including technological readiness and the macroeconomic environment – although persistent challenges remain here. Other challenges include a large fiscal deficit, security, innovation and market size.

  • Kuwait

Kuwait has dropped to 52nd overall – down 20 places from 2016-17 – largely as a result of a deterioration in the macroeconomic environment. A revision of indicators published by the International Telecommunication Union also sees a fall in technological readiness.

Investments in higher education and training would increase its innovation capacity.

  • Oman

Oman moves up four places to 62nd. Improvements in its macroeconomic environment and higher education and training are reasons for this rise. It also has strong institutions and infrastructure.

However, work is still needed to improve education and training systems as well as reforms to its labour markets.

  • Jordan

A stable and efficient institutional system and relatively good infrastructure, innovation and business sophistication are areas of strength for Jordan. The large influx of Syrian refugees has put the country’s fiscal situation and macroeconomic environment under strain, but the government has worked to consolidate both of these.

  • Morocco

Morocco places 71st in the Global Competitiveness Index, with the same score as the previous three years.

It scores well on its institutions but sits 120th for labour market efficiency and 101st for higher education and training.

  • Algeria

Algeria has risen nearly 25 places in the GCI since 2012-13. Its market size is a particular area of strength, however it scores poorly for labour market efficiency and financial market development.

  • Tunisia

Tunisia completes the top 10, coming 95th in the GCI with the same score as the previous two years. However, its overall score and place has fallen since 2013-14.

It scores well, relatively, in the health and primary education pillar, but poorly for labour market efficiency and macroeconomic environment.

For more on all the countries, you can read the country profiles contained within the report.

Ten years of change

Six countries have seen their competitiveness score improve over the last 10 years, while six have seen their score fall back.

Investments in infrastructure and connectivity have turned some countries into global leaders for technological adoption in the last decade. However, the report argues that for progress to continue, and competitiveness to increase, societies in the region will need to update their social and economic models.

 

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