The Middle East and North Africa (MENA) region significantly improved its T&T competitiveness since the last edition of the TTCI. With 12 of the 15 MENA economies covered by this year’s index increasing their score compared to 2017, the region was able to slightly outpace the global average in competitiveness growth. This is particularly important given that, in the aggregate, T&T accounts for a greater share of regional GDP than in any of the other four regions. MENA is also the only region where international visitor spending is greater than domestic visitor spending. Yet despite improved competitiveness and a strong reliance on T&T for overall economic growth, MENA continues to underperform the global TTCI score average.
MENA’s below-average competitiveness is primarily a result of low scores on indicators related to natural and cultural resources and international openness. The region’s historical and religious heritage and geographic features create the potential for significant natural and cultural tourism; yet, while some individual nations come close, no MENA country scores above the global average for natural resources and only Egypt and Iran score above for cultural resources. In fact, the entire region’s score in both of these areas has fallen in recent years. More needs to be done to expand habit protection and heritage sites. Moreover, digital demand for MENA’s natural, cultural and entertainment demand is fairly low, indicating potential gaps in marketing and traveller perceptions. One potential reason for this gap is continued safety and security concerns. Eleven MENA countries rank within the bottom 40 for terrorism incidents, with two among the worst 10 countries globally. Further, the region is plagued by geopolitical tensions, instability and conflict. Security concerns also play a role in why MENA members are some of the most restrictive when it comes to international openness, with only Qatar, Oman and Morocco making significant improvements. Consequently, travellers often face barriers when visiting the region, while the aviation and overall T&T sector is stifled by limiting bilateral air service and regional trade agreements.
More positively, stability, safety and security have started to recover throughout the region, slightly reducing travel fears and underlying one of the key reasons for the recent pickup in arrivals. Furthermore, it seems that there has been greater recognition of T&T’s importance, with broad regional improvements in T&T prioritization, including increased government funding and more effective marketing campaigns to bring back or attract new visitors. Greatly enhanced environmental sustainability also has the potential to pay dividends for natural assets (note that environmental sustainability comparison is influenced by the use of new data to measure marine sustainability). In addition, prices have become more competitive among countries within the region, amplifying MENA’s single biggest advantage relative to the global average. As one of the world’s main producers of fossil fuels, MENA includes some of the world’s lowest fuel prices, with some governments offering subsidies. Moreover, many of the region’s economies offer visitors greater purchasing power (especially Egypt, Algeria, Iran and Tunisia), which has been increased by lower exchange rates. Yet it is reductions in ticket taxes and airport charges as well as lower hotel prices that have primarily driven regional price competitiveness in recent years.
Infrastructure has also improved, with particularly impressive growth in the number of airlines and route capacity. Despite these gains, world-class infrastructure remains concentrated among the Arab states of the Persian Gulf. The Gulf countries have been able to use their natural resource wealth, central geographic location and relative security to develop world-class T&T infrastructure, defined by quality airports, ports, roads, tourist services and some of the world’s leading airlines. These efforts are in stark contrast to some other MENA nations that—due to a lack of investment and ongoing instability—have yet to develop competitive infrastructure, especially regarding air transport. Similarly, the region’s above-average score on the Enabling Environment subindex is due to the performance of the Gulf countries and Israel, which have developed economies, strong business environments, ICT readiness and some of the highest scores in safety and security. Finally, most regional economies also score near the bottom when it comes to female participation in the labour market, depriving the T&T industry of a greater labour and skills pool.
The Middle East subregion is by far the more competitive of the two subregions, outscoring North Africa on nine pillars. Thanks to the Arab states of the Persian Gulf and Israel, the subregion is wealthier and more developed than the North Africa subregion. Consequently, it is no surprise that the Middle East scores above the global and regional averages on indicators related to enabling environment and infrastructure, with particularly high ranks on ICT readiness and business environment. Nevertheless, the subregion does trail the world and North Africa on T&T prioritization and policy and natural and cultural resources. In particular, many Middle East nations score relatively low on the International Openness and Natural Resources pillars, which represent the subregion’s greatest disadvantages relative to global competition. One of the Middle East’s highest-scoring pillars is Price Competitiveness, with some economies leveraging their fossil fuel abundance to offer lower fuel prices. Since the 2017 edition of the report, the subregion has improved across all pillars of T&T policy and enabling conditions, safety and security, ICT readiness and much of infrastructure, but declined or stagnated on other pillars.
This year, eight out of the subregion’s 11 members improved their TTCI score since 2017. Oman demonstrated the greatest improvement, moving up eight places to 58th. MENA’s safest (3rd) country recorded the subregion’s fastest improvement for its human resources and labour markets (103rd to 65th), and is among the most improved when it comes to international openness (116th to 97th), environmental sustainability (109th to 57th) and overall infrastructure (60th to 52nd). Yet some of the improvement in environmental sustainability is exaggerated due to new marine sustainability metrics. In contrast, the UAE had the Middle East’s largest decline, falling from 29th to 33rd, including the biggest percentage decline in score on the Safety and Security pillar (falling from 2nd to 7th) and Ground and Port Infrastructure (19th to 31st) and the subregion’s only decline on Environmental Sustainability (40th to 41st). Nevertheless, the country remains in the lead in the Middle East and is MENA’s top TTCI scorer, leading on ICT readiness (4th), air transport (4th) and tourist service (22nd) infrastructure. The Middle East’s—and MENA’s—largest T&T economy is Saudi Arabia (69th), which scores above the subregion’s average on most pillars, but near the bottom on international openness (137th). Plagued by ongoing conflict and a lingering humanitarian crisis, Yemen (140th), ranks at the bottom of the global index.
North Africa scores lower than the Middle East, but demonstrates far greater improvement in overall competitiveness. The subregion outscores the Middle East on five pillars and bests the global average on four. North Africa is the most price competitive subregion in the world, with three out of its four members among the 12 least-expensive economies covered in the report. North Africa’s greatest advantage relative to the Middle East is its natural and cultural resources—although it still underperforms the world on both the Natural Resources and Cultural and Business Travel pillars. The subregion also bests the MENA average in prioritization of T&T and environmental sustainability, areas where it has improved since 2017. On the other hand, North Africa has underdeveloped infrastructure and T&T enabling environment, contrasting some of the high performers in the Middle East subregion. In particular, North Africa trails when it comes to tourist service infrastructure and ICT readiness. The subregion’s strong rate of improvement is due to enhanced safety and security, overall T&T policy and enabling conditions and air transport and ground infrastructure.
All four members of the North Africa subregion increased their TTCI scores over 2017. Egypt (65th) is the subregion’s top scorer and its largest T&T economy. The country is also MENA’s most improved scorer. Egypt is price competitive (3rd) and has MENA’s highest score for cultural resources (22nd). Its improvement comes from increases on 11 pillar scores. These include the world’s second-best enhancement of safety and security (130th to 112th), albeit from a low starting base. Morocco (66th) demonstrates North Africa’s slowest improvement in TTCI performance. The country is a close second to Egypt when it comes to overall competitiveness, boasting the MENA region’s top TTCI scores on natural resources (63rd) and North Africa’s best enabling environment (71st) and infrastructure (69th). However, TTCI performance improvement is tempered by declining safety and security (20th to 28th), which remains well above the subregion’s average, and a deteriorating combination of natural and cultural (41st to 54th) resources. North Africa’s lowest scoring member is Algeria (116th), which nonetheless did move up two ranks globally. The country ranks low on business environment (118th), T&T prioritization (132nd), tourist services infrastructure (136th), environmental sustainability (133rd), natural resources (126th) and international openness (139th). On the other hand, Algeria is one of the most price-competitive countries in the world (8th).
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.
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.