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MENA’s trade performance, and its projected growth

MENA’s trade performance, and its projected growth

Rebecca HardingCEO of Coriolis Technologies, invitee of Trade Briefing, discusses MENA‘s trade performance, its projected growth and key political risks for 2020.


Note on the impact of Covid-19: 

This report was compiled before the Covid-19 pandemic and therefore refers to patterns and trends based on data that was current at the time of writing in February 2020. The full impact of Covid-19 on trade is unknown, but the World Trade Organization estimates that trade will fall by anything between 13% and 32% globally during 2020. Alongside this, and ahead of any impact on trade, the Mena region was already being affected by the collapse in global oil prices, which happened in March and, again, was not factored into this report. However, the points in the report remain valid: that the region’s dependency on oil will have an impact on its trade and economic performance, greater in net oil exporting countries than in net oil importers.

There are other general concerns amongst trade finance professionals around the role of the trade credit insurance sector, which is now heavily exposed to the sharp downturn in global trade. Inventories are collapsing as just-in-time distribution models struggle to cope with restrictions on the physical movement of goods. This is affecting invoice payments and, while it is too early to say exactly how this will affect the recovery from the current crisis, it is undoubtedly the case that many businesses in supply chains worldwide will not survive. As a result, the role of government agencies at present is vital in supporting exporters. In addition to fiscal support, countries will also need clear and robust strategies to rebuild economically once lockdowns are lifted.

GTR: 2019 was a sluggish year for trade. How was MENA affected by this general climate of uncertainty?

Harding: Mena has had a tough few years and last year was not really any different. The combined effects of the trade war between the US and China, the UK’s exit from the EU and enduring intra-regional tensions, particularly between the US and Iran, made 2019 a poor year for trade.

This follows five years of sluggish growth. A weak or volatile oil price over the period since 2013 to the end of 2018, which is where the data is actual rather than forecast, has meant that export revenues have dropped at an annualised rate of 6% in Mena – the highest decline of any global region (Figure 1). This has had a spill-over effect on the region’s economies as well, with imports falling back by nearly 3% annually over the period, suggesting weaker demand both within Mena and globally for the goods that are re-exported from the region.

MENA's trade performance, its projected growth

The Mena region is particularly vulnerable to underlying uncertainties globally. It is highly dependent on two things: oil prices and global demand for the goods that are shipped through the Gulf via its largest ports. As a result, the overall picture for the region in 2020 is likely to be mixed and show no particularly clear pattern of recovery from the uncertainty that has dominated the last few years in terms of oil prices, and 2019 in terms of broader geo-economic and geopolitical issues (Figure 2). The collapse of oil prices, following an OPEC meeting in early March, was a product of Saudi Arabia’s decision to launch a price war; this will have major repercussions for the region.

What stands out from Figure 2 is that, in spite of the difficult environment around sanctions and its fraught relationship with the US, Iran is projected to fare well in trade terms during 2020, especially in terms of its exports. That said, care should be taken when interpreting Iran’s data as a lot of its trade is hidden or executed with poor reporting partners.

MENA's trade performance, its projected growth

Even if the figure of a 55% increase in the projected value of Iran’s exports seems extreme, it arguably reflects a slowdown in trade in 2018 as a result of US sanctions, and a pick up into 2020 as the country finds a way to work around the restrictions it now faces. Its largest export partner is China and the projections suggest an increase in export trade during 2020 of around 8%, alongside imports from China of around 17%. But it is not just China where Iran is seeing trade growth. Exports to the UAE are set to grow by nearly 39%, to the Republic of Korea by over 52% and, perhaps most intriguingly of all, to parts of Asia not indicated elsewhere (Asia NIE) of more than 2,000% year on year.

Asia NIE is Iran’s second largest export partner. It is an amalgamation of trading partners that are too small or too unreliable in their reporting to be classified individually as countries in trade statistics. The fact that it is both a large partner and that its growth is volatile but substantial during the course of the coming year suggests some of this growth is a reaction to the political and economic uncertainties that exist in the region.

Morocco is another country in the region which is predicted to see export growth in 2020. This reflects its position as a non-oil-dependent trading nation with an increasingly strong manufacturing base. Its top five trading partners are European, which points to its role as a gateway for trade between Mena, Europe and Africa. Its imports from Spain, for example, are increasing rapidly, with growth predicted at 8% during the course of the coming year. While oil and gas are important imports to Morocco from Spain, machinery and components, automotives and electrical products and equipment imports are also large and growing sectors. Spain has also taken over from France as Morocco’s largest export partner.

Nonetheless, the region remains vulnerable to global trade’s broader fragilities. These are likely to continue into 2020, not least because there is no sense that trade tensions have gone away, even if in an election year for the US there may be a slightly toned-down rhetoric. Trade growth remains negative or flat for most of the region’s countries and this will affect the extent to which GDP picks up.

GTR: Is there any sign that Mena has increased its resilience into 2020 and beyond?

Harding: The real measure of resilience in the region is the extent to which it is managing to reduce its dependency on oil. This is most evident in its imports (Figure 3). The region’s GDP expansion has failed to pick up since the collapse of oil revenues and, according to the IMF, is likely to be around 1.6% in 2020, down from 2.2% in 2017.

The fact that economic growth looks to have slowed somewhat has had an impact on the region’s imports. For example, imports of machinery and components (which includes computer machinery as well as tools for infrastructure development projects), will decline by 0.6% in 2020. The longer-term outlook to 2023 also points to an annual drop in imports of 0.3%. Iron and steel products, aircraft and automotives all exhibit a similar pattern.

MENA's trade performance, its projected growth

This could arguably be a function of two things. First, the region’s infrastructure has gone through a growth phase as ports and airports have been constructed to support its increased role as a trade hub. The slowdown now may well be because this construction process has slowed as more projects have been completed.

The second cause may be a slowing of regional or global demand, as might be suggested by the drop in automotive imports. This could suggest that there is a bigger picture to the sluggishness of trade in the region.

However, the data does not support this interpretation. The Mena region imports over US$75bn in automotives each year and exports just US$13bn. Exports are forecast to increase both in 2020 and for the next few years (Figure 4). This suggests that the region is potentially becoming more important as a hub, and that it will be re-exporting more in the coming years. The slowdown in imports therefore looks as if it can be attributed to the region’s economic fortunes. Indeed, the fact that iron and steel product imports are also declining indicates that there is less construction work going on.

MENA's trade performance, its projected growth

Even so, the projected growth in exports is encouraging. The region has a trade deficit in all of its largest sectors except mineral fuels and some of the import sectors where growth is slower, such as infrastructure products like iron and steel, may simply be a function of the fact that a lot of resource has been put into catching up over the past couple of decades and that this development is now slowing. Growth in exports of other infrastructure sectors such as machinery and components, aluminium and electrical products, alongside growth in automotives, suggests that the region’s role is changing – and this will mean that its long-term resilience is somewhat more assured.

GTR: How is intra-regional trade developing in Mena?

Harding: Mena will see an increase in intra-regional trade from 2019 to 2023, and this is noticeable in comparison to the pick-up in intra-regional trade in other net oil exporting regions such as South America and Sub-Saharan Africa (Figure 5). The only other region with faster intra-regional trade growth is Asia Pacific (APAC).

While oil remains the dominant traded sector in Mena, this greater intra-regional trade indicates either that the region’s oil dependency is declining or simply that there is a greater amount of cross-border trade within the region.

MENA's trade performance, its projected growth

Could this therefore mean that more export diversity across the region is behind the growth in regional trade? A first glance suggests not. The top five countries for intra-regional exports are the UAE, Saudi Arabia, Iran, Iraq and Oman. In terms of export growth, the UAE, Iran and Saudi Arabia are growing quickly, but Iraq and Oman are falling back. Similarly, the top five countries for intra-regional imports are the UAE, Saudi Arabia, Egypt, Iran and Oman. All of these countries are likely to see growth in intra-regional import values between 2019 and 2020 (Figure 6).

A couple of points stand out from this chart: first, the impact on Qatar’s trade because of the blockade, which began in June 2017, is evident. Intra-regional trade values fell back between 2013 and 2018 at an annualised rate of over 20%. While this initially aligned with the collapse in oil prices, an annualised decline of 16.1% in imports between 2016 and 2019 covered the pick-up in oil prices and the onset of the blockade, while intra-regional exports over the same three-year period fell annually at over 22%. The data suggests that this will continue into 2020.

MENA's trade performance, its projected growth

Furthermore, Morocco’s trade with the region looks set to decline at the same time it increases with the EU27 and Spain and France in particular. The country’s trade with Mena spiked during the financial crisis, largely because of an uptick in gold prices, with a three-year growth in imports of over 300%, albeit from a low base. Other imports, such as automotives, clothing and accessories, and milk and dairy products have remained on a consistent downward trend since 2014.

Morocco exports hard commodities and plastics to the rest of Mena, and these have also been on a downward trend since 2014 because of weak commodity prices. In other words, the structure of Morocco’s trade with the rest of the region is very different to its trade outside of the region, which is focused on intermediate manufactured goods.

This leads to the conclusion that, in fact, growth in intra-regional trade has been driven by a rise in oil prices, rather than any diversification efforts. Indeed, between 2017 and 2020, intra-regional trade in oil and gas grew by nearly 6% annually. The UAE, Egypt, Jordan and Bahrain have been major beneficiaries of this pattern, which looks set to continue.

GTR: Geopolitical tensions between the US and Iran have added a layer of uncertainty into the 2020 outlook. How will this play out during the course of the year?

Harding: On January 3, US forces carried out a drone strike near Baghdad International Airport killing Qasem Soleimani, commander of Iran’s Quds Force and right-hand man to Ayatollah Ali Khamenei, Iran’s supreme leader. Khamenei vowed “severe revenge”. Five days later, on January 8, 16 short and medium-range ballistic missiles were launched at two US airbases in Iraq (Ain al-Asad and Erbil). No fatalities were reported, which US officials attributed to an effective satellite early warning system known as the Space Based Infrared System. It is likely that Iran’s response was an example of ‘escalation for de-escalation’; by providing the US with a degree of early warning, casualties could be minimised and direct conflict with the US avoided, while still demonstrating to Iran’s domestic base that action had been taken. From the US perspective, President Trump was equally unlikely to be willing to become embroiled in a costly war during an election year.

Although tensions between Iran and the US are unlikely to lead to direct conflict, there are two real risks to the region. The first is that of miscalculation – in other words, the danger that either Iran or the US misinterprets the actions of the other and acts accordingly. For example, had the US had any fatalities from the Iranian response, there may have been a more severe, escalatory response. This risk is always there but the fact that neither side appears to have much appetite for conflict means that it is unlikely to be the major issue affecting trade during the course of the year.

Of more consequence is the second risk that is apparent in the region at present, which is that it is increasingly caught in the power struggle between Russia, China and the US. As Coriolis Technologies has been observing for some time now, Russia is increasing its influence in the region. Our data suggests that the average annualised growth in imports from Russia for the period 2016-2020 will be around 14%. While much of this is oil and gas, the period 2015-2018 saw a worrying exponential growth in so-called commodities not elsewhere specified – trade in which closely correlates with conflict around the world. This reflects Russia’s role in Yemen and Syria in particular.

The consequence for trade of this type of uncertainty is obvious. It holds back investment as businesses outside of the region tread cautiously to avoid conflict. However, while Russia’s engagement in the region provides a backdrop to traditional “hard” power, the US is now using its financial power rather than military means to support its regional objectives.

The tightening of sanctions on Iran since the US withdrew its support for the Iranian nuclear treaty (JCPOA) has affected the way in which banks can operate in the region. The risk of secondary sanctions, for example inadvertently using the US dollar for a transaction, as well as the direct risk of trading with a sanctioned entity or person is the core way in which trade with the region will be affected.

Mena continues to be dominated by trade with areas not elsewhere specified (Areas NES), which is an agglomeration of countries which are either too small or report too irregularly, potentially indicating hidden trade. Exports to this partner were worth US$519bn in 2018; US$97.1bn of these exports were in commodities not elsewhere specified. The region’s exports to Asia NIE were worth US$19bn in 2018.

What this says is that trade in the region remains opaque. While this continues to be the case, it is very difficult for dollar-denominated trade finance to work with banks in the region. Swift has shut down its messaging services to Iran; and although European government officials announced in April that Instex, a trade vehicle set up to bypass US sanctions on Iran, has successfully completed its first transaction, there remain doubts over the viability of the mechanism. China, Russia, Iran and Turkey have been building an alternative to the Swift network, but as this would be subject to the same sanctions constraints as other regions, unless and until US strategy changes, the opacity and political nature of trade will be a core challenge for the region as a whole.

GTR: The largest ports like Dubai are increasingly focusing on their role as trading hubs for re-exports. How will this expand in the coming year?

Harding: The best way of approaching this question is to look at trade with free trade zones (FTZs). These are the economic areas around ports or airports which are specific to a sector and which enable re-export activity by providing tax and customs duty incentives to overseas investors and trading businesses. Dubai alone has more than 30 of these zones; the UAE has the greatest number of FTZs of any country in the region.

Because countries report exports to FTZs, but FTZs do not report imports as a country in their own right, the data depends on the reliability of the partner country and, as a tax and duty payment mechanism rather than as a trading partner, the numbers tend to be small. The Mena countries are amongst the least reliable reporters globally, so the data is somewhat erratic but nevertheless tells an interesting story:

  1. Mena as a region exported some US$981mn to freeports in 2018. The dominant products that the region exported were electrical products and equipment, precious metals and stones (gold and diamonds), commodities not elsewhere specified, machinery and components and mineral fuels (oil and gas).
  2. Mena imported some US$220mn of goods from freeports in 2018. The dominant sectors were commodities not elsewhere specified, mineral fuels, electrical products, machinery and components and coffee and tea.
  3. Exports to FTZs declined between 2013 and 2018. However, Coriolis Technologies is expecting growth in exports to be nearly 150% between 2018 and 2019, and to fall back to around 2% between 2019 and 2020.
  4. The trade with FTZs is not necessarily attributable to hidden trade as such. By way of comparison, the region trades over US$519bn with areas not elsewhere specified and US$27.5bn with Asia not elsewhere specified. Since these have been shown to be highly correlated with sanctions avoidance and conflict as discussed, the distinction is an important one to be made.

These patterns tell an interesting story about how FTZs may be utilised at present. Oil and gas, precious metals and stones and commodities not elsewhere specified are sectors which hide other patterns in trade. However, trade in electrical products, automotives, machinery and components and coffee and tea suggest that something else is happening given the expected overall growth in trade with FTZs.

Because trade looks to have grown so quickly between 2018 and 2019, FTZs clearly play an important role in the region’s trade. The data is naturally opaque, so any conclusion is to some extent speculative. However, tighter sanctions and the risk of secondary sanctions against Iran from the US means that trade with one of its main trading partners became very difficult for Mena during that year. Alternative mechanisms, such as FTZs, mean that trade technically does not touch either Iran or its financial institutions. As a result, FTZs may become a route to continued legal trade with sanctioned countries.

GTR: China is playing an increasingly active role in Mena. What are the key developments and are there any particular sectors of interest?

Harding: One cannot overstate the importance of China to the Mena region. Imports from China were worth US$146bn and exports worth US$169bn in 2018.

Mena’s exports to China are dominated by oil and gas, which makes up nearly 76% of the total at US$128bn.

Imports from China are far less concentrated. The top five imports from China are electrical products and equipment (US$38.1bn), machinery and components (US$22bn), knitted clothing and accessories (US$4.6bn), iron and steel (US$6.2bn) and automotives (US$6.2bn).

China is strategically focused on its electronics exports and, in 2019, Mena is estimated to have imported US$9.2bn of specialised electronic equipment from China. This represents an annualised growth of 27% since 2016, when President Trump came to power in the US and China became more explicit about its global aspirations. While China’s imports from Mena may well be focused on energy security, it is extending its reach into the region through technology.

Yet trade growth overall has been sluggish. Over the period between 2013 and 2018, imports from China grew at an annualised rate of 1%, while exports increased by just 0.6%. This is largely because of oil price related economic weakness in Mena, which has affected both domestic demand as well as the value of exports to China.

Even so, Mena’s trade with China is twice the size of trade with its second largest country-level export partner, the US. China overtook the US as the region’s largest country partner (excluding blocs like the EU27) in 2009. The growth in the trading relationship was particularly evident between 2002 and 2014, likely driven by Chinese investment into the energy sector, given that post-2014 growth has trailed off amid lower oil prices (Figure 7).

MENA's trade performance, its projected growth

Despite China’s expansionary policy through the Belt and Road Initiative (BRI) to develop infrastructure more generally, it is energy security that seems to underpin its trade with the region. Investment has supported that with the majority going into the energy sector. This highlights the fact that China invests for its strategic purposes, although real estate (construction) and transport have featured strongly. In effect, then, the BRI has just given a name to an investment trend that has been growing gradually since before the financial crisis (Figure 8).

Up to 2013, all investments by China into Mena were classified as non-BRI, but since 2014, all investments have been classified as BRI – this is again a reflection of how China is now categorising its investments. The pattern is clear, though: the general trend is for more investment in the region, both in terms of consistency and in terms of value. The fact that investments appeared to drop in 2019 may reflect two things: first, the general uncertainties during the course of the year that arose from the US-China trade war which held back investments globally. Second, and as a result of the dispute, China was relatively quiet about the BRI during the course of the year having been very public about its intentions the previous year – perhaps as a signal to the US that it was growing its economic power.

Whatever may be the case, what is important is that the investments appear to support China’s trade aspirations in the region.

MENA's trade performance, its projected growth

GTR: What are the key upside and downside risks to growth in the region in 2020 and what are the consequences for trade finance?

Harding: Trade within the region is substantial and the value of bank-intermediated trade finance from intra-regional trade alone is as much as US$122bn per year. Electronics trade between countries in the region has grown by 36.7% since 2016, machinery and components by nearly 19% and, against the odds perhaps, Iran’s intra-regional trade is growing by an annualised figure of 47%.

Much of the growth in trade finance will depend on the risk appetite of the region’s financial institutions. There is plenty to invest in, as is clear from this report, but the region itself has a number of challenges which banks will need to overcome: Coriolis Technologies risk indicators for the region, particularly around the risk of terrorism, the risk of repression and threats from regimes, are among the highest in the world. While businesses on the ground are trying to reduce the region’s dependency on oil, particularly in technology and digitalisation, this reputational risk cannot be ignored.

The region is particularly prone to commodity price fluctuations. The collapse of oil prices since the beginning of 2020 presents a serious threat to Mena’s economic wellbeing. Saudi Arabia is unlikely to be able to thrive economically at an oil price below US$70 a barrel. With 82% of its export revenues coming from oil and gas (approximately US$455bn in 2019) and its next largest export products like plastics also being heavily oil dependent, its overall trade is 96% correlated with the price of oil.

Russian influence in the region is growing as a result of the US strategy to withdraw militarily and, in reality, economically as well. Since the global financial crisis, imports from Russia have grown from US$11.8bn in 2009 to US$27.8bn in 2018. Similarly, exports have grown over the same period from US$1.9bn to US$4.2bn. Increased trade with Russia and China is likely, not least because of the sanctions that are now associated with any trade in US dollars that might touch Iran. This will have the effect of limiting trade and investment – and the role of global banks – in the region if there is any compliance risk from supporting intra-regional trade in particular. Meanwhile, greater Russian involvement in Mena will add to the complexity of already fraught relations between countries in the region, with the potential of an escalation into broader conflict.

The Covid-19 pandemic has caused widespread economic disruption around the world. This is a key risk which could impact events in the region, travel and tourism and, of course, oil trade. These are risks that are the same for everywhere in the world at present, but the potential for a global recession is obvious. The extent to which the region’s reforms over the past few years have created economic resilience are likely to be tested during the course of this yea

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MENA Region Is Poised To Be The Next Fintech Hub

MENA Region Is Poised To Be The Next Fintech Hub

SCOOPEMPIRE‘ s TECH wondering Why The MENA Region Is Poised To Be The Next Fintech Hub, its Scoop Team on June 4, 2020, answered by posing another question such as What is Fintech, and where is it most prominent in this essay.


As the world braces itself for a potential global recession, it’s hard to countenance the idea of growth markets or lucrative industries. However, entities such as the fintech sector undoubtedly challenge this mindset, with the global market worth an impressive $127.66 billion by the end of 2018.

The market is also poised for further expansion in the near-term, with a compound annual growth rate rate of 25% forecast through 2022. This will create a fintech sector worth approximately $309.98 billion, while also helping to drive significant innovation and technological advancement in the wider financial services space.

Interestingly, we’re also seeing the geographical diversification of fintech, with locations in regions such as Africa and the Middle East now competing with established financial powerhouses like London. But why exactly will the Middle East and North Africa (MENA) jurisdiction become the next major fintech hub?

What is Fintech, and where is it most prominent?

In simple terms, fintech refers to financial technologies, while it continues to drive a diverse range of innovations and applications within the financial services sector.

Historically, it was used almost exclusively by financial institutions themselves, but over time it has continued to evolve to represent emerging technologies in their own right and the widespread disruption of the traditional financial services sector.

MENA Region Is Poised To Be The Next Fintech Hub

The history of fintech can also be traced back to the origins of the 21st century, while over the course of the last decade it has evolved into a rapidly growing and advancing customer-oriented spectrum of services. This is true across a number of financial industries too, although it’s fair to surmise that the impact of fintech innovation has been more prominent in some markets than others.

Take the foreign exchange, for example, which has been gripped by a fintech revolution that remains largely unchecked to this day. Make no mistake; the impact of fintech has been felt throughout every aspect of forex trading over the course of the last two decades, from the emergence of online and mobile brokers to the implementation of high-frequency trading tools and automated risk-management measures.

These fintech innovations have helped to make the forex market far more accessible to a wider international audience, while enabling everyday and non-institutional investors to trade variable derivatives and forex trading sessions.

This includes lucrative and high-volume entities such as the Asian trading session (which operates between the hours of 12am and 9am GMT), along with an entire basket of emerging currencies and asset classes associated with regions such as Africa and the Middle East).

The rise of Fintech in MENA – a marriage made in heaven?

Of course, this is just one measure of the growing relationship between fintech and the MENA region, and one that becomes increasingly formidable with every passing year.

This is borne out by the figures too; with the fintech market in the MENA region expected to account for 8% of the areas’ total financial services revenue by 2022. This growth has been largely inspired by a rising number of fintech startups in sectors such as forex, combined with increased mobile Internet penetration and sustained economic reforms throughout the region.

Overall, the number of fintech startups offering fiscal services in the MENA jurisdiction will peak at 250 by the end of this year, up from a paltry 46 back in 2013. This evolution has also been driven by sustained investment in the sector, with the Dubai International Financial Centre (DIFC) having launched a notable $100 million fintech fund back in November 2017.

The main purpose of this investment was to accelerate the growth and influence of fintech in Dubai and the Middle East as a whole, and this has already had a marked impact in terms of achieving this objective. This also involved market-leading financial institutions such as HSBC, who have recently committed to renewing their participation for the third year.

This means that the region’s most dynamic and profitable fintech startups will continue to benefit from sustained support and nurturing, paving the way for the MENA region to become increasingly influential in the marketplace and challenge established entities such as London and Hamburg.

WE SAID THIS: The region is booming in more ways than you know!

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Following The Likes Of Other Platforms, LinkedIn Introduces Stories,…Jun 3, 2020

Grim short-term Forecast for the Coronavirus-era Economy

Grim short-term Forecast for the Coronavirus-era Economy

‘The immediate issue for all businesses, in whichever industry they’re in, is survival’ – Shehab Gargash by Bernd Debusmann Jr who on 30 May 2020 reports that Gargash Group managing director and CEO Shehab Gargash has a grim short-term forecast for the coronavirus-era economy. But out of the ashes, opportunity will arise.
10 Scenarios for the MENA region in the year 2050 elaborated by @Eubulletin amongst many others predicted similar outcome, even though the world was not going through the same exceptional circumstances.

Grim short-term Forecast for the Coronavirus-era Economy
Gargash believes many companies in the UAE are preoccupied with survival, rather than in longer-term outcomes

Like most globetrotting travellers and businessmen, Shehab Gargash’s office has souvenirs of his trips. But these souvenirs aren’t postcards, fridge magnets or cheap trinkets. Gargash collects boarding passes – hundreds of which are kept in a massive glass display case in his office, atop of which sits a silver and red aircraft wing.

“Oh! I have slipped the surly bonds of earth,” reads a sonnet on the case, written by American poet and pilot John Gillespie Magee Jr, killed flying a Spitfire over England during the Second World War. “And danced the skies on laughter-silvered wings.”

This, I think to myself when I see it, is a man who really loves his travel. His Instagram account proves it.

From India and China to Barcelona, Monaco and the Maldives, Gargash gets around – and that’s just in the last year alone.

But like the rest of us, Covid-19 has put a damper on Gargash’s travel plans.

“When will I travel again? That’s a good question,” he tells me, chuckling through the grainy screen of our video teleconference meeting.

“If I’m going on holiday, I want to enjoy it.  So I’m not itching to get back on a plane. I don’t think we’ll be there anytime soon.”

In the current climate, an Instagram-worthy trip is the least of Gargash’s concerns. At the moment, he’s preoccupied with facing the impact of the coronavirus pandemic, both on Gargash Group – of which he is managing director and CEO – and on the wider economies of the UAE and GCC.

Some estimates – such as that of the International Monetary Fund (IMF) – forecast that the GCC economies will collectively record negative real GDP growth in 2020, with the UAE slipping to -3.5 percent from 1.3 percent growth last year.

When it comes to the crisis, Gargash’s warm smile and friendly banter come to a stop. This isn’t a situation he minces words about.

“The immediate issue for all businesses, in whichever industry they’re in, is survival,” he tells me. “I think we are facing worldwide, industry-wide, existential issues that a lot of us have never even dreamed of. It’s all-encompassing and covers all sorts of areas of the economy.”

Hard times ahead

When it comes to the pandemic-related issues that the UAE’s economy faces, few are in a better position to comment than Gargash. A scion of one of the country’s most prominent Emirati families, Gargash leads the Gargash Group, which has diverse interests including automotive, real estate, hospitality and financial services. He’s also the founding chairman of Daman Investments – not to mention a long-time banking industry and prolific socio-economic commentator.


Gargash Enterprises is the authorised distributor for Mercedes-Benz in Dubai, Sharjah and the Northern Emirates

In the short-term, he says with startling matter-of-factness, the forecast is grim. He predicts that many businesses will not last.

“People aren’t looking at their strategies, or their plans. They’re looking at the daily details of expenses, revenue, cash in the bag. The immediate oxygen for the business to live through this,” he says. “Many businesses will not appreciate the impact of what they thought were very small elements, like levels of leverage and borrowing that seemed manageable a few weeks ago. These will deal a fatal blow to a lot of businesses.”

Perhaps more alarmingly, Gargash believes that most businesses are “nowhere near” a stage in which they can even think of what the future holds. What businesses will look like, and how they can adapt to new realities, are still unknowns.

“We haven’t even considered that future yet. A lot of businesses, through no fault of their own in many cases, will not survive simply because they have underappreciated the need to have that safety cushion,” he adds.

‘Soul searching’

According to Gargash, the businesses that do survive the immediate impact of the pandemic over the coming weeks and months will soon have to start thinking of their next moves.

“You can’t afford to be firefighting too long. Over the weeks and months, [companies will] regain their balance. Subsequent to that, strategy kicks back in,” he explains. “Where am I going as a business? What are my priorities? What are new opportunities, and what’s a dying, sunset industry?

“It’s time we ask ourselves these questions as businesses, as they’ll define how we act, post the shock-therapy. Once we do that, our priorities are better defined, and actions put together accordingly,” Gargash adds. “That’s the kind of soul searching that will occupy our minds this year, and possibly into next year.”


The company has diverse operations in financial investment and real estate

Gargash Group is far larger than most businesses that operate in the country. For the average resident, the company is most readily associated with the automotive sector, being the authorised distributor for Mercedes-Benz in Dubai, Sharjah and the Northern Emirates. It is, however, much more than that, offering a wide range of financial, investment and real estate services in various sectors.

But the company’s size and status did not spare it from the impact of the coronavirus. “We went through shock and panic, and saw revenues tumble to extremely low levels, and like everyone had to grapple with a 24-hour lockdown,” Gargash recalls. “Those were the issues that we dealt with as a group in the early days of the pandemic. Nobody knew how to deal with Covid-19.”

And although Gargash says it is “far too early” for decisions to be made on the company’s future, it has already begun a soul-searching process he advises for companies across the wider economy.

“That’s where we are at right now. Let’s say I have 10 lines of business. Which ones are still valid propositions? The ones that aren’t, do I adjust them? Do I integrate them into something else? Or do I just cut the rope and let them sink?,” he says. “Those kinds of questions are still being tackled.”

While it may be too early to determine what the group’s focus will be going forward and what it may need to be cut loose, Gargash says he isn’t particularly worried. The group’s core businesses – automotive, real estate, and financial services – will form a key part of the post-Covid economy in some form.

In fact, he adds, the shock of the pandemic may end up being a blessing in disguise that forced the company to become “more daring in its implementation.”


Businesses that will survive the impact of the pandemic over the coming months will soon have to start thinking of their next moves, Gargash believes

“We’ll try new ideas, new thoughts, concepts and industries that in the past I dismissed,” he explains. “Let’s imagine, for a second, potato farming. Potato farming has been proven to be a strategic source of nourishment. That’s a silly example, but understand, I’m obliged to become a more entrepreneurial business, and regardless of how ‘classic’ I’ve been in the past. I must investigate new avenues. I have the same eagerness to survive as a brand new start-up.”

A new GCC?

Gargash is undoubtedly an optimist. Even while speaking about the challenges of the economy, he peppers his comments with reminders that, sooner or later, things will return to something resembling normality. As he puts it, the masks will fall off, and the glove won’t be a necessity – even if the “trauma” of the event stays with us.

Even widespread job losses, he says, will eventually lead to something better. “In the longer term, jobs will be replaced, rather than lost. We still [in the UAE] have an economy serving 10 million people, and a broader GCC economy with 50 million or so. Jobs will be created, possibly in new industries and in new roles.”

These new roles – which Gargash admits he isn’t sure what will be, exactly – will require many employees, from blue-collar workers to managers, re-skill themselves, or learn entire new professions. Although challenging, he is confident the region’s youth in particular will manage.

“This [trend] will disproportionally [benefit] young people,” he says. “They’re more adept and more able to align themselves with industry trends.”

These ‘new roles’ don’t just apply to employees. The pandemic, he believes, may ultimately change the UAE’s economy as a whole by encouraging more home-grown entrepreneurs to step up with fresh new ideas.

“Most of the businesses that are set up in the UAE are in the ‘last-mile’ economy: the delivery of a product or service that has evolved somewhere else, or was manufactured somewhere else. Your control over what your supplier gives you is fairly limited. I can’t invent a better wheel, so to say. I’m just distributing the wheel that was manufactured somewhere else.”


Young people could align themselves with industry trends, says Gargash

What we’ll see instead, Gargash hopes, is an opportunity for motivated entrepreneurs to try and forecast where the future is headed and where they can step in with an idea.

“In a post Covid-reality, we’ll be asking what is going to drive businesses, and what those businesses will look like,” he says. “There needs to be a proper reading of what demands will need to be fulfilled. Businesses will need to alter their offerings to suit the new realities.”

He adds, “It’s by no means an easy task. There’s still a lot of projection and reading into the future that is required.”

Once that’s done, he says, the UAE’s economy will be able to take off – as will he, on his next trip abroad. For Gargash, that day will be welcome news.

“I have a fear of losing my frequent flyer miles,” he laughs. “But that’s another story.”


Advice for investors

When asked what advice he’s given to would-be UAE investors in the pandemic, Gargash responds without hesitation: “hold on to it and watch what happens.”

“Do not rush into investments today. I do not think there will be an imminent, overnight bounce back of growth and activity,” he says. “It’s going to come back, but it will be more deliberate.

“It’ll take more time. If I was an investor with AED1m, I’d hold back and watch and observe. I’d make a convinced decision before I take that plunge and go into one asset class.”

Covid-19 to trigger 27pc fall in Q2 global trade: UN

Covid-19 to trigger 27pc fall in Q2 global trade: UN

In GENEVA, Switzerland, today the UNCTAD forecasts, which project a quarter-on-quarter decline of 27% is elaborated in Covid-19 to trigger 27pc fall in Q2 global trade: UN as summarised by the following :

  • Global trade values fell 3% in the first quarter of 2020
  • An estimated quarter-on-quarter decline of 27% is expected in the second quarter
  • Commodity prices fell by a record 20% in March, driven by steep drops in oil prices

The coronavirus pandemic cut global trade values by 3 per cent in the first quarter of this year, according to the latest UNCTAD data published in a joint report by 36 international organizations.

The downturn is expected to accelerate in the second quarter, with global trade projected to record a quarter-on-quarter decline of 27 per cent, according to the report by the Committee for the Coordination of Statistical Activities (CCSA).

The report is a product of cooperation between the international statistics community and national statistical offices and systems around the world, coordinated by UNCTAD.

“Everywhere governments are pressed to make post-Covid-19 recovery decisions with long-lasting consequences,” UNCTAD Secretary-General Mukhisa Kituyi said.

“Those decisions should be informed by the best available information and data. I’m proud that UNCTAD has played a central role in bringing so many international organizations together to compile valuable facts and figures to support the response to the pandemic.”

Commodity prices falling too

According to the report, the drop in global trade is accompanied by marked decreases in commodity prices, which have fallen precipitously since December last year.

UNCTAD’s free market commodity price index (FMCPI), which measures the price movements of primary commodities exported by developing economies, lost 1.2 per cent of its value in January, 8.5 per cent in February and a whopping 20.4 per cent in March.

Plummeting fuel prices were the main driver of the steep decline, plunging 33.2 per cent in March, while prices of minerals, ores, metals, food and agricultural raw materials tumbled by less than 4 per cent.

The more than 20 per cent fall in commodity prices in March was a record in the history of the FMCPI. By comparison, during the global financial crisis of 2008, the maximum month-on-month decrease was 18.6 per cent.

At that time, the descent lasted six months. Worryingly, the duration and overall strength of the current downward trend in commodity prices and global trade remain uncertain.

Before the Covid-19 pandemic sent international commerce into a tailspin, global merchandise trade volumes and values were showing modest signs of recovery since late 2019.

Situation changing rapidly

The UNCTAD now casts featured in the report incorporate a wide variety of data sources, capturing diverse determinants and indicators of trade, but the situation is changing rapidly.

“In this time of crisis, we are putting out the facts as we know them today. We’ll continue monitoring the global trade landscape as it evolves,” said UNCTAD’s chief statistician Steve MacFeely.

“I’m delighted the international statistical community could step up, mobilize quickly and publish such a useful and fascinating report. It was a great honour for UNCTAD to lead this endeavour.” – TradeArabia News Service

Indian billionaire Ambani accelerates debt plan

Indian billionaire Ambani accelerates debt plan

Oil, telecom and retail conglomerate Reliance Industries now expects to reach zero net debt ahead of the March 2021 target as reported by Arabian Business of 1 May 2020. Here is the story of how and why Indian billionaire Ambani accelerates debt plan as stake sale to Saudi drags.

Indian billionaire Ambani accelerates debt plan as stake sale to Saudi drags

Ambani’s focus on paying down debt and attracting investors comes as Reliance on Thursday reported its biggest profit slump since 2008

Mukesh Ambani, Asia’s richest man, accelerated the timeframe for wiping out $21 billion in net debt at his Reliance Industries Ltd., seeking to quash skepticism that emerged as talks to sell a stake in some assets to Saudi Arabian Oil Co. have dragged on.

The oil, telecom and retail conglomerate now expects to reach zero net debt ahead of the March 2021 target Ambani had set in August, the Mumbai-based company said in a statement Thursday. A $7 billion share sale to existing investors was approved by the board on Thursday, a week after Facebook Inc. agreed to invest $5.7 billion in Reliance Industries’ Jio Platforms business.

The rights issue — the latest in a series of fund-raising efforts — may help Ambani, 63, pay down borrowings that piled up as the company spent almost $50 billion to roll out a wireless network. Building investor confidence has become all-the-more crucial after the pandemic caused a crashin oil prices, undermining prospects for Reliance’s proposal to sell an estimated $15 billion stake in its oil and chemicals business to Saudi Arabian Oil.

Talks on the investment by the world’s biggest oil producer are on course, Reliance said Thursday in the statement. The company also said it has sought regulatory approvals to carve out the oil and chemicals division. Investors have sought clues to the progress of negotiations with Aramco, as the Saudi company is known, helping drag the stock to a two-year low in March. The shares have rebounded, gaining about 66% since the March 23 close, on renewed confidence in Ambani’s ability to attract investors.

“Reliance Industries has demonstrated excellent timing for fund raising,” said Chakri Lokapriya, chief investment officer at TCG Asset Management. “The Jio Platforms-Facebook deal provides Reliance a huge, scalable business venture with first-mover advantage. The rights issue is a smart way of raising capital.”

Ambani’s focus on paying down debt and attracting investors also comes as Reliance on Thursday reported its biggest profit slump since 2008, missing analyst estimates, on a plunge in oil prices and slumping demand.

Profit plunged by nearly 40% in the March quarter as the coronavirus outbreak slammed fuel demand. To cut costs, Ambani is foregoing his pay and has cut salaries at the oil unit, the company said Thursday.

The billionaire has vowed to shift Reliance away from dependence on profit from its energy-related businesses to faster-growing consumer segments including its digital platform and retail.

Reliance said Thursday that it has received interest from new potential global partners in taking a stake of similar size to Facebook’s agreement to buy a 10% stake in the company’s platform business.

Reliance “has received strong interest from other strategic and financial investors and is in good shape to announce a similar sized investment in the coming months,” it said in a statement. The company “is set to achieve net zero debt status ahead of its own aggressive timeline.”

The Facebook-Jio Platforms transaction is to be closed by end of this quarter, the company said in a presentation to investors on its website.

Under the planned rights offering, Reliance will issue shares worth 531.3 billion rupees, it said Thursday. The deal includes one rights share for every 15 held, at 1,257 rupees each, or 14% lower than the closing price on Thursday. Ambani and other members of the founding family who own stakes will subscribe to their entire entitled portion and will buy any stock left over, under the plan.

The offering comes at a tumultuous time for many companies in India.

Even before the pandemic triggered one of the world’s most extensive lockdowns and slammed economic growth, companies were struggling to raise money as banks cut back lending. The atmosphere may make it hard for Ambani to come through on his plans, said Arun Kejriwal, director at KRIS, an investment advisory firm in Mumbai.

“The rights issuance is not attractive,” said Kejriwal. “Hence, the math is not adding up for Reliance in cutting its net debt to zero ahead of the promised deadline. The road map needs to be clearer as the earnings were below expectations.”

In April, Reliance said it would raise as much as 250 billion rupees through non-convertible debentures.

Adjusted debt peaked at 2.7 trillion rupees in fiscal 2020, according to S&P Global Ratings. The ratings company expects that to decline to about 2.2 trillion rupees in the following year and 1.7 trillion rupees by fiscal 2023.

Earnings growth at the company’s digital and retail segments will be about 50% in fiscal 2020, S&P estimates. The businesses will account for about 40% of the company’s earnings before interest, taxes, depreciation and amortization, from just 3% in 2017, S&P said.

“The company’s strategy of transforming its upstream energy focus to domestic consumption-driven businesses has been successful,” S&P said in an April 28 report affirming Reliance’s BBB+ credit rating. “We expect digital and retail growth to continue in fiscals 2021 and 2022.”

Worst Economic Downturn Since the Great Depression

Worst Economic Downturn Since the Great Depression

Well before the sudden irruption of the COVID-19 pandemic, we entered a phase unknown before, that of a slowdown in the world economy. The economies north of the MENA region were first to feel the pinch of the Dollar. The MENA petro-economies know this since the advent of oil. What they did not perhaps know is that it is the worst economic downturn since the Great Depression.

A small story before going into the latest IMF blog of April 14, 2020. In Europe, the German machine seemed running out of steam, with a few small cracks appeared by the questioning the German miracle. The locomotive of Europe tired by putting up so much effort trying to pull and strengthen the stragglers of the union that are Greece, Portugal, Spain, and other Eastern countries. 

These countries however were integrated into the European Union for geopolitical reasons aimed at creating a strong Europe in the face of the communist challenge on the one hand and US exuberance on the other. Without going into the technical details of the financial mechanisms and destabilization processes devised by the US, the thinly veiled objectives of the dominant states are first security imperatives and eventually the long-term control over global wealth.

Moreover, the countries lagging above have brought nothing useful to the EU if not ever more unemployed and care to manage. After Brexit, all that remains is Germany and France to pull the EU train.  Germany, knowing that these countries were plagued by chronic corruption and mismanagement, did not want to sacrifice itself to fish them, and this is understandable because prestige politics is never good in bad weather. Indeed, the €500 billion injected by the state into the banks was the lifeline to avoid the crash of the entire German financial system and thus the collapse of the European Union.

So here is Gita Gopinath who wrote The Great Lockdown: Worst Economic Downturn Since the Great Depression.

Worst Economic Downturn Since the Great Depression
Photo: WILLY KURNIAWAN/REUTERS/Newscom)

The world has changed dramatically in the three months since our last update of the World Economic Outlook in January. A rare disaster, a coronavirus pandemic, has resulted in a tragically large number of human lives being lost. As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown. The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.

April World Economic Outlook projects global growth in 2020 to fall to -3 percent.

This is a crisis like no other, and there is substantial uncertainty about its impact on people’s lives and livelihoods. A lot depends on the epidemiology of the virus, the effectiveness of containment measures, and the development of therapeutics and vaccines, all of which are hard to predict. In addition, many countries now face multiple crises—a health crisis, a financial crisis, and a collapse in commodity prices, which interact in complex ways. Policymakers are providing unprecedented support to households, firms, and financial markets, and, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown.

Worst Economic Downturn Since the Great Depression

Under the assumption that the pandemic and required containment peaks in the second quarter for most countries in the world, and recedes in the second half of this year, in the April World Economic Outlook we project global growth in 2020 to fall to -3 percent. This is a downgrade of 6.3 percentage points from January 2020, a major revision over a very short period. This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis.

COVID-19 – The financial crisis of 2008 was a piece of cake

COVID-19 – The financial crisis of 2008 was a piece of cake

With, the omnipresent COVID-19 – The financial crisis of 2008 was a piece of cake as proposed by ELECTRIFYING on 9 April 2020 we are given a comparative view of the different crises that currently shake not only the world of finance but the world at large.

The world has seen difficult financial times before, like the ‘Black Tuesday’ in 1929, which we all know as the ‘Great Crash of Wall Street’. Only 13 years ago, we were able to observe another crash originating in the USA but spreading all over the world to end in a global financial crisis. Yet we see ourselves heading towards the next crisis at a frightening pace, but surely, we should be prepared and have learned our lesson from mastered crisis’. 

Unfortunately, the unpleasant truth is that the world has not seen this kind of crisis before, as it is constituted genuinely different from the ones we already went through. This time the financial insecurity hasn’t been caused by banks or real estate market; it has been triggered by a global virus which led to the shutdown of economies backbone – SME businesses. The mentioned shutdown has resulted in a short-term demand and supply shock of real-economy to first affect the stock exchange due to its pro-active market responsiveness. 

Further effects are the inflation of bonds and company shares as it takes some time for rating agencies screening forecasts and month-end reports until updating the credit rating of companies and governmental entities. The United Kingdom, Mexico, Brasil, Argentina, Iran, Irak and many others have already been cut.

The world has seen difficult financial times before, like the ‘Black Tuesday’ in 1929, which we all know as the ‘Great Crash of Wall Street’. Only 13 years ago, we were able to observe another crash originating in the USA but spreading all over the world to end in a global financial crisis. Yet we see ourselves heading towards the next crisis at a frightening pace, but surely, we should be prepared and have learned our lesson from mastered crisis’. 

Unfortunately, the unpleasant truth is that the world has not seen this kind of crisis before, as it is constituted genuinely different from the ones we already went through. This time the financial insecurity hasn’t been caused by banks or real estate market; it has been triggered by a global virus which led to the shutdown of economies backbone – SME businesses. The mentioned shutdown has resulted in a short-term demand and supply shock of real-economy to first affect the stock exchange due to its pro-active market responsiveness. 

Further effects are the inflation of bonds and company shares as it takes some time for rating agencies screening forecasts and month-end reports until updating the credit rating of companies and governmental entities. The United Kingdom, Mexico, Brasil, Argentina, Iran, Irak and many others have already been cut.

COVID-19 – The financial crisis of 2008 was a piece of cake

Eventually, the real estate market will as well see a correction of the booming prices due to a rising supply but limited buyers in the market, partially as an effect of travel boundaries and decreasing cash pools of investors and individuals. If there are only ten local prospective buyers compared to hundreds of international interested parties, the current peek prices will no longer be achieved. 

As an upside, we don’t expect hyperinflation to kick-in caused by billions of Pounds, Dollars and Euros simultaneously flooding the markets for the sake of securing liquidity. Indeed, central banks had no other choice but to keep the printer on full throttle to steer against the sharp drop in the stock market. In contrast to an earlier crisis, globalisation and digitalisation have driven the supply of equivalent products to a majority of goods and services, e.g. Cinema vs Netflix, Restaurants vs Delivery Services, Physical Meetings vs Video Conferences. Besides, shelves in most supermarkets around the world are still filled with necessities despite numerous media promotions regarding panic buying.

As it happens, the real threat this time is the shutdown of SMEs, the resulting mass unemployment and the dropping purchasing power. Millions of people all around the world are losing their jobs, struggling to pay their rent and mortgages while facing severe existential issues. In the aftermath, tax deficiency, reduced economic growth, and ongoing down grades of institutions and countries as a whole will also impact the stock market in the long run. Hence, we expect further global economic struggles to highly depend on the realisation of global decision makers’ strategies 

A lesson taught from past experience illustrates that a financial crisis always shows unexpected long-term collateral. The Imperial College of London has released a study in 2016, stating an additional 260,000 deaths linked to the financial crisis of 2007/08. This frightening result has been assigned solely to unaffordable or late cancer diagnosis/therapies of countries without universal healthcare in the OECD like the US or UK. 

COVID-19 – The financial crisis of 2008 was a piece of cake

Within the energy sector, business is still running as usual with some effects of dropping prices due to the reduced demand. On the other hand, postponement of new installations is inevitable. Power utilities and O&M companies are classified as being essential infrastructure, which enables their staff to hit the road and keep the energy flowing. Although the restrictions and enhanced H&S measures (PPE, scheduling of lone working, unavailability and avoidance of hotels, increases of travel time, etc.) also bear additional costs to the energy sector, it has been vastly unaffected so far. 

Ending this blog post with some good news, Forbes has published an astonishing figure of 72% of all energy project in 2019 were renewable, which would be an eager target for the FY2020 as well. 

What direction do you see our economy heading towards?  

Turkey tries to keep wheels of economy turning

Turkey tries to keep wheels of economy turning

Bulent Gökay, Keele University elaborates on how Turkey tries to keep wheels of economy turning despite worsening coronavirus crisis. It, contrary to its neighbours, would not go down the same way. Read on to find out why.


Turkey confirmed its first case of the new coronavirus on March 11, but since then the speed of its infection rate has surpassed that of many other countries with cases doubling every two days. On April 2, Turkey had more than 15,000 confirmed cases and 277 deaths from complications related to the coronavirus, according to data collated by John Hopkins University.

The Turkish government has called for people to stay at home and self-isolate. Mass disinfection has been carried out in all public spaces in cities. To encourage residents to stay at home, all parks, picnic areas and shorelines are closed to pedestrians.

Some airports are closed and all international flights to and from Turkey were banned on March 27. All schools, universities, cafes, restaurants, and mass praying in mosques and other praying spaces has been suspended, and all sporting activities postponed indefinitely.

Manufacturing remains open

Many small businesses in the service sector are closed, and many companies in banking, insurance and R&D have switched to working from home. But in many industrial sectors, such as metal, textile, mining and construction, millions of workers are still forced to go to work or face losing their jobs. In Istanbul, where more than a quarter of Turkey’s GDP is produced, the public transport system still carries over a million people daily.

Recep Tayyip Erdoğan, Turkey’s president, has openly opposed a total lockdown, arguing a stay-at-home order would halt all economic activity. On March 30, he said continuing production and exports was the country’s top priority and that Turkey must keep its “wheels turning”.

But in the short term, many of Turkey’s export markets for minerals, textiles and food, such as Germany, China, Italy, Spain, Iran and Iraq, are already closed due to the virus. This has led to enormous surpluses piling up in warehouses. Even where there are overseas customers, getting the goods delivered has proven difficult. The process of sanitising and disinfecting the trucks and testing the drivers before they travel takes many extra hours, sometime days, after waiting in long lines.

Still, Erdogan’s statements give the impression that he sees this pandemic not only as a serious crisis, but also as an opportunity for Turkish manufacturers. The hope is that, after the Chinese shutdown, European producers which depend on Chinese companies for a range of semi-finished products may consider Turkey as an alternative supplier in the longer term. That’s why the government is still allowing millions of workers to go to factories, mines and construction sites despite the huge health risk.

A bruised economy

The Turkish government announced a 100 billion lira (£12 billion) stimulus package on March 18. It included tax postponement and subsidies directed at domestic consumption, such as reducing VAT on certain items and suspension of national insurance payments in many sectors for six months. But this is an insignificant sum for an economy as big as Turkey’s.

Most of the support will go to medium and large companies that were forced to close, and only a very tiny amount to individual workers. In order to benefit from the scheme, a person must have worked at least 600 days in the past three years (450 days for those in Ankara). Those with most need get the lowest level of help or no help from the state.

The tourism sector, which accounts for about 12% of the economy, has already been decimated. Some 2.5 million workers will not be able to work as they had been expecting to in the peak tourist months between April and September.

Limited room for manoeuvre

Even before the virus hit Turkey the economy was already weak, still trying to recover from the impacts of a 2016 coup attempt and a 2018 currency crisis, both of which caused severe stress to Turkey’s economic and financial systems.

In March, Turkey’s Central Bank reduced its benchmark interest rate by 1%, and several of the country’s largest private banks announced measures to support the economy, such as suspending loan repayments. As a result, the Turkish lira initially held up reasonably well, compared with other emerging market economies, but it fell to an 18-month low on April 1 as the coronavirus death rates accelerated. Official interest rates have fallen below 10%, providing some protection to those holding Turkish lira versus some foreign currencies.

Turkey’s financial options to limit the impact of the crisis are limited. Credit rating agency Moody’s revised its prediction for the country GDP from 3% growth in 2020 to a 1.4% contraction. Still, it may get a reprieve from the low oil price. Turkey imports almost all its energy needs, and with the recent fall in the price of oil and gas, this means Turkey could save about US$12 billion (£9.6 billion) in energy imports.

It is hard to see very far ahead. During the next few months, it’s expected that Turkey, alongside South Africa and Argentina, could be sliding toward insolvency and debt default. After that, everything depends on how this crisis progresses and how long it will take to end.

Bulent Gökay, Professor of International Relations, Keele University

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

Gulf faces recession as oil deluge meets COVID-19

Gulf faces recession as oil deluge meets COVID-19

MENA sovereign wealth funds are set to yank billions from stock markets, with the cash needed back home reported Alison Tahmizian Meuse in an article Gulf faces recession as oil deluge meets COVID-19 in an Asian Times article dated March 30, 2020. It is said elsewhere notably in the local media that these sovereign funds could shed something like $300 billion.


A stairwell in the Queen Elizabeth II cruise liner docked at Port Rashid in Dubai, where the tourism sector has been devastated by the COVID-19 pandemic. Photo: AFP

Middle East oil exporters are bracing for recession and the lowest growth rates since the 1990s, with economists warning that the “twin shocks” of Covid-19 and plummeting oil prices will have a knock-on effect across the region.

“Quarantines, disruption in supply chains, the crash in oil prices in light of the breakdown of OPEC+, travel restrictions, and business closings point to a recession in the MENA region, the first in three decades,” the Institute of International Finance warned this week.

Oil exporters in the Gulf and North Africa are projected to see growth levels drop to 0.8%, IIF said, based on an average price per barrel of $40. At the time of publication on Monday, crude was hovering at cents above $20 per barrel.

Petro-titans like Saudi Arabia, which have shifted major resources toward sovereign wealth funds in recent years, are expected to recall funds back home as their collective surplus of $65 billion is flipped inside out to a deficit of the same amount or more.

These sovereign wealth funds could shed up to $75 billion in stocks in the coming period, Reuters on Sunday quoted JPMorgan’s Nikolaos Panigirtzoglou as saying.

Saudi Arabia’s Public Investment Fund currently holds significant shares in everything from ride-hailing app Uber to Japan’s SoftBank.

Such funds have likely already offloaded as much as $150 billion-worth of stock in the month of March, said Panigirtzoglou.

How did we get here?

Saudi Arabia earlier this month launched an oil price war, flooding the market with crude in a game of chicken against Russia after the latter refused to collaborate on production cuts.

Moscow, which desired lower prices to compete with US shale, did not blink.

The result has been, Bloomberg reports, a “cascade” of oil surplus, with some landlocked producers literally paying buyers to relieve them of supplies they cannot store.

From Saudi Arabia to Algeria, MENA exporters are expected to see hydrocarbon earnings fall by nearly $200 billion this year, according to the Institute of International Finance report, resulting in a loss of more than 10% of GDP in this sector alone.

As the price war was launched, the novel coronavirus began spreading through the Gulf, shattering hopes of diversifying toward tourism in the near future.

Saudi Arabia, with approximately 1,300 confirmed cases as of Monday, has shuttered the gates of Mecca over fears it could become the new virus epicenter after Iran.

The religious pilgrimage to Islam’s holiest sites, mandatory for every Muslim, nets Saudi Arabia billions of dollars each year.

Knock-on effect

The financial troubles in the Gulf do not stop at the Persian Gulf, but are slated to have a painful knock-on effect across the Middle East region.

Young people from Lebanon, Jordan, and Egypt – with its population of 100 million, have for decades turned to the Gulf Arab states for jobs after graduation, doing everything from running restaurants in Riyadh to working in banks in Dubai.

Such positions have become even more crucial in a time of heightened visa restrictions in the United States and Europe.

A recession in the Gulf, thus spells an even worse outlook for already struggling economies in the Levant, which often look to the oil producers for help during hard times.

“A global recession will lead to a reduction in trade, foreign direct investment, tourism flows, and remittances to Egypt, Jordan, Morocco, and Lebanon,” IIF said.

Egypt, the report notes, is expected to see a “significant drop” in critical Suez Canal transit revenues, as global trade suffers.

The Egyptian government earlier this month revoked the press credentials of Guardian correspondent Ruth Michaelson after she reported on a researcher’s findings that Egypt was seeing a higher number of Covid-19 cases than reported.

Reactions to the Coronavirus Outbreak in the Middle East

Reactions to the Coronavirus Outbreak in the Middle East

What Have the Reactions to the Coronavirus Outbreak in the Middle East Shown? Wondered Michael Young citing four members of the middle Eastern elites on yet another challenge that the region is confronting.


Souha S. Kanj | Professor of medicine, head of the Division of Infectious Diseases, chair of the Infection Control and Prevention Program at the American University of Beirut Medical Center

The events related to the coronavirus outbreak are evolving quickly around the world. The situation in the Middle East is probably more complex than elsewhere. The countries of the region are a mix of rich and poor states, with variable GDPs and health infrastructures, and are frequently characterized by political instability and tension. War and violent conflicts have weakened health infrastructure in many countries. The influx of migrants through borders has contributed to healthcare related challenges. The region also has geopolitical and economic ties to both China and Iran, which recently appeared as the epicenters for the COVID-19 outbreak in the region.

There is a striking variation in the number of reported cases by country in the Middle East. Underreporting is thought to be prevalent, whether due to an unwillingness, and sometimes a lack of preparedness, to perform accurate testing. Syria, for example, has not reported any cases, despite its close ties to Iran. Its fragile health system is likely incapable of detecting and responding to the epidemic. The same applies to Yemen.

Some countries in the Middle East have raised the alert level during the past week by imposing school closures and other measures of social distancing. The Saudi authorities have cancelled the Umrah pilgrimage and access to Mecca to nonresidents until further notice. Some Gulf countries are requiring visa applicants to produce a negative test for COVID-19. Other countries are still reporting few cases. In Iran, the response was slow, suggesting an unwillingness to report cases before the country’s elections. Mortality among infected patients in Iran seems to be among the highest after China.

There is little to suggest that Middle Eastern countries have joined efforts to address this global viral threat. The Arab League has remained silent. No meetings have been announced to discuss the evolving situation. Arab countries in the Middle East have so far missed an opportunity to overcome political divisions and closely collaborate to contain the spread of the virus in the region. It might not be too late to engage in coordination, especially from the wealthier states, to provide technical, material, and financial assistance to their neighbors.

Amir A. Afkhami | Associate professor of psychiatry, global health, and history at George Washington University, author of A Modern Contagion: Imperialism and Public Health in Iran’s Age of Cholera.

Karl Marx once said that history repeats itself, first as tragedy, then as farce. Nothing illustrates this more than the series of baffling policy decisions by Iran’s leadership that have resulted in the largest outbreak of the novel coronavirus (COVID-19) in the region. Despite advances in the biomedical sciences and infectious disease control in the past century, the Iranian government’s response to the coronavirus outbreak has been hobbled by ideological, religious, and economic concerns.

Other countries in the Middle East have followed suit, often prioritizing their non-medical domestic and foreign policy interests in establishing travel bans, quarantines, and other forms of public health precautions. These religious, political, and economic determinants of infectious diseases hark back to the pre-World War I period in the region. Devotional visits to shrine cities and burials at holy sites played an important role in the dissemination of pandemic outbreaks in the Iranian and Ottoman Empires throughout the 19th and early 20th centuries. Similarly, political, economic, and religious interests often took precedence over public welfare in the way quarantines, travel bans, and disinfection policies were established within the empires and on their frontiers. This shows us that historic social and political forces continue to shape the impact of contagions on the peoples of the Middle East.

Basem al-Shabb | Former Lebanese parliamentarian, American Board in general and cardiothoracic surgery

The response to the COVID-19 epidemic in the Middle East has followed the usual script in the region for dealing with calamity. Whereas human suffering invites cooperation in other places, in the Middle East it seams to accentuate cultural and sectarian tensions. As reports of cases were trickling out of Iran, the authorities engaged in denial. Only recently did the Syrian Health Ministry confidently state that there were no known cases in Syria. In Lebanon, flights from Iran, the epicenter of the epidemic, continued unabated and screening at the airport was instituted rather late in the game. Throughout the region, there is an undercurrent of sectarianism. While Iran wrestles with a massive epidemic, Egypt has reported only a few cases and, interestingly, Turkey has reported none. There is hardly any cooperation or exchange of information on COVID-19 among the countries of the Levant.

The epidemic has also touched on religious sensitivities, with some churches in Lebanon insisting on pursuing communion using a single utensil. There is no doubt the coronavirus has brought out the usual regional reactions of denial, delayed responses, myth-mongering, sectarianism, as well as conspiracy theories.

Bader al-Saif | Nonresident fellow at the Carnegie Middle East Center in Beirut, where his research focuses on the Gulf and Arabian Peninsula

The coronavirus outbreak is a potent reminder that the Middle East is no different than the rest of the world. The outbreak has reinforced preexisting tendencies in the region, where it is no secret that systems are largely broken. It has further exposed governmental weakness, evidenced in ambiguous, inconsistent policies. Crisis management and transparency are largely lacking, and so is the faith of citizens in governments’ ability to protect them. Political considerations have triumphed over necessary health directives in various states, putting citizens at further risk, whether by allowing the continuation of flights from high risk areas, such as Iranians traveling to Lebanon, or deferring necessary testing, as in Egyptians traveling to Kuwait. There are notable exceptions, such as Saudi Arabia, where the state has managed the outbreak of the coronavirus and peoples’ reactions to it.

Responses have ranged from denial to fear. Some assume the virus is a conspiracy theory, while others are misinformed about its nature. The virus has also justified racist slurs. With most of the Middle East contracting the virus via Iran, the anti-Iran camp has condemned Iran’s irresponsibility and poor services (ignoring the impact of U.S. sanctions), with some even suggesting that the virus is a Shi‘a phenomenon aimed at infecting the Sunni-majority Middle East.

There has been a third, more measured response among less ideological people. These include business owners, who are concerned about the economic impact of the outbreak; expatriates barred from returning to their homes due to travel bans; families who do not want their children’s education affected by prolonged breaks; and sensible policymakers who have sought to jointly coordinate responses. The outbreak has reminded Middle Easterners of their shortcomings. They patiently are awaiting a breakthrough that would end the coronavirus outbreak, so they can redirect their efforts to addressing other problems long plaguing the region.

The Middle East still looking for a growth model

The Middle East still looking for a growth model

Posted on March 8, 2020, in The Arab Weekly, Six decades after independence, Middle East still looking for growth model by Rashmee Roshan Lall is an accurate survey of the region that faces, as we speak, prospects of harshest times. How is the Middle East still looking for a growth model? Investing in the human capital of children and young people as well as enhancing their prospects for productive employment and economic growth is little more complicated than relying on Crude Oil exports related revenues. These are the main if not the only source of earnings of the region now plummeting perhaps for good before even peaking. In effect, all petrodollar inspired and financed development that, put simply, was transposed from certain parts of the world, using not only imported materials but also management and all human resources can not result in anything different from that described in this article.


Though a large youthful population would normally be regarded an economic blessing, it’s become the bane of the MENA region.


The Middle East still looking for a growth model
Dramatic changes. Employees of Aramco oil company at Saudi Arabia’s Abqaiq oil processing plant. (AFP)

It’s been 75 years since World War II ended and the idea of decolonising the Middle East and North Africa began to gain ground but, while formal colonisation ended about six decades ago, the region seems unable to find a clear path to growth.

Rather than an “Arab spring,” what may be needed is a temperate autumn, a season of mellow fruitfulness to tackle the region’s biggest problems. These include finding a way to use the demographic bulge to advantage, reducing inequality of opportunity and outcome and boosting local opportunity.

Here are some of the region’s key issues:

Youth ‘explosion’

The MENA region’s population grew from around 100 million in 1950 to approximately 380 million in 2000, the Population Reference Bureau said. It is now about 420 million and half that population lives in four countries — Egypt, Sudan, Iraq and Yemen.

The 2016 Arab Human Development Report, which focused on youth, said most of the region’s population is under the age of 25.

The youth bulge is the result of declining mortality rates in the past 40 years as well as an average annual population growth rate of 1.8%, compared with 1% globally. The absolute number of young people is predicted to increase from 46 million in 2010 to 58 million in 2025.

Though a large youthful population would normally be regarded an economic blessing, it’s become the bane of the MENA region. The demographic trend suggests the region needs to create more than 300 million jobs by 2050, the World Bank said.

Jihad Azour, International Monetary Fund (IMF) director for the Middle East and Central Asia, said MENA countries’ growth rate “is lower that what is required to tackle unemployment. Youth unemployment in the region exceeds 25%-30%.” The average unemployment rate across the region is 11%, compared to 7% in other emerging and developing economies.

Unsurprisingly, said Harvard economist Ishac Diwan, a senior fellow at the Middle East Initiative, young Arabs are unhappier than their elders as well as their peers in countries at similar stages of development.

Last year’s Arab Youth Survey stated that 45% of young Arab respondents said they regard joblessness as one of the region’s main challenges, well ahead of the Syrian war (28%) and the threat of terrorism (26%).

The region’s population is expected to nearly double by 2030 and the IMF estimated that 27 million young Arabs will enter the labour market the next five years.

Poverty and inequality

Most Arab people do not live in oil-rich countries. Data from the UN Economic and Social Commission for Western Asia (ESCWA) stated that 116 million people across ten Arab countries (41% of the total population), are poor and another 25% were vulnerable to poverty. This translates to an estimated 250 million people who may be poor or vulnerable out of a population of 400 million.

The MENA region is also regarded as the most unequal in the world, with the top 10% of its people accounting for 64% of wealth, although the average masks enormous differences from one country to another.

The middle class in non-oil producing Arab countries has shrunk from 45% to 33% of the population, ESCWA economists said. In a report for the Carnegie Corporation last year, Palestinian-American author Rami G. Khouri described what he called “poverty’s new agony,” the fact that a poor family in the Middle East will remain poor for several generations.

Egypt is a case in point. In 2018, Cairo vowed to halve poverty by 2020 and eliminate it by 2030. However, Egypt’s national statistics agency released a report on household finances last year that said that 33% of Egypt’s 99 million people were classified as poor, up from 28% in 2015. The World Bank subsequently nearly doubled that figure, saying 60% of Egyptians were “either poor or vulnerable.”

Wealth gaps between countries are greater in the region than in others because it has some of the world’s richest economies as well as some of the poorest, such as Yemen.

Inequality is not the only problem in the region. Former World Bank economist Branko Milanovic said the uneven picture means that last year’s protests in Lebanon, Algeria, Sudan and Iraq cannot be explained by “a blanket story of inequality.”

Indeed, Algeria, a relatively egalitarian country, was roiled by protests, first against a long-serving president and then against the wider political system.

French economist Thomas Piketty, who wrote the bestselling book on income inequality, “Capital in the Twenty-First Century,” said Arab countries must come up with a way to share the region’s vast and unequally distrib­uted wealth.

Lost decades of growth

In the decade from 2009, the region’s average economic growth was one-third slower than in the previous decade. The IMF said per capita incomes have been “near stagnant” and youth unemployment has “worsened significantly.”

The state is the largest employer in many Arab countries and over-regulation of the private sector left it underdeveloped and unable to overcome the significant barriers to trade and economic cooperation across regional borders. Meanwhile, inflexible labour laws stifled job creation and cronyism allowed inefficiency to stay unchallenged. In 2018, the average rank of Arab countries on the World Bank’s Doing Business survey was 115th out of 190 countries.

Along with structural factors, conflict has had a debilitating effect on economic growth. Three years ago, the World Bank noted that the Syrian war had killed approximately 500,000 people, displaced half the population — more than 10 million people — and reduced more than two-thirds of Syrians to poverty.

By 2017, conflict in Yemen and Libya had displaced more than 15% and 10% of their respective populations of 4 million and 6 million. Taken together, the Syrian, Yemen and Libyan civil wars have affected more than 60 million people, about one-fifth of the MENA population.

Infrastructural damage runs into the billions of dollars but it is the loss — or outright collapse, as in Yemen — of economic activity that has affected real GDP growth.

Countries in the region affected by conflict lost $614 billion cumulatively in GDP from 2010-15 — 6% of the regional GDP, ESCWA’s 2018 report on institutional development in post-conflict settings stated.

New thinking needed

This is the year when, for the first time, an Arab country holds the chairmanship of the Group of 20 of the world’s largest economies. It could be an opportunity to consider existing trends within the region, what needs to be changed and how.

In the words of Oxford development macroeconomist Adeel Malik, “the Arab developmental model… seems to have passed its expiration date.” In a 2014 paper for the Journal of International Affairs, Malik said “failure of the Arab state to deliver social justice is ultimately rooted in the failure of a development model based on heavy state intervention in the economy and increasingly unsustainable buyouts of local populations through generous welfare entitlements.”

It’s a good point, for the region’s richest countries just as much as its poorest. Oil-rich states are affected by dramatic changes in oil prices and the increasingly urgent suggestion that the world is at “peak oil.” An IMF report warned that, by 2034, declining oil demand could erode the $2 trillion in financial wealth amassed by Gulf Cooperation Council members. The IMF said “faster progress with economic diversification and private sector development will be critical to ensure sustainable growth.”

Creativity and courage will be needed if the Arab world is to meet the expectations of its youthful population and the challenges posed by its increasing inequality.

MENA to see $23B in Hotel Building by 2023

MENA to see $23B in Hotel Building by 2023

HOTEL BUSINESS on February 17, 2020, informs that MENA to see $23B in Hotel Building by 2023, mostly in the Gulf region. A region that still knows a significant construction boom despite inevitable volatility in its primary revenue would be hosting crowds of visitors soon to two major international events. These are the International Exhibition of 2020 and the Football World Cup 2022 in Qatar. The other regions of the MENA, whether North African or of the Levant that mostly preoccupied with their respective geostrategic concerns, have smaller demand for hotels buildings.



INTERNATIONAL REPORT—The Arabian Hotel Investment Conference (AHIC) 2020 has released the third annual AHIC Hotel Investment Forecast, which reveals that more than $23 billion worth of hotel construction contracts are scheduled to be awarded in the Middle East and North Africa (MENA) between now and 2023.

According to research conducted by regional project tracking service MEED Projects in Q4 2019, the hotel development sector will be most active in Oman, Egypt, UAE and Saudi Arabia, making these the markets to watch in 2020.

“On the back of the more than 700 new hotels worth in excess of $53 billion having been built over the past seven years, the Middle East is rightly viewed as a high-growth region for tourism,” said Ed James, director of content and analysis, MEED Projects. “Growing economies, enhanced infrastructure and the opening up of the sector have acted as catalysts for development.”

He continued, “In terms of the hotel pipeline, Saudi Arabia is the leading future market with just under $9 billion worth of projects planned to be awarded over the next four years. This includes a minimum of 21,500 rooms, across 36 individual hotel, resorts and master-planned tourist destinations. The Kingdom has made tourism and the opening up of its cultural heritage and pristine Red Sea coastline key components of its 2030 Vision. Self-styled ‘gigaprojects’ like The Red Sea Project, Amaala, Neom and the Qiddiya entertainment hub are set to transform Saudi Arabia and the region over the next few years.”

The UAE is in second place, with $7.6 billion worth of hotel construction contracts on the four-year horizon. Oman has hotel developments worth more than $2 billion in the pipeline, while Egypt has some $1.9 billion worth of projects set to be awarded by 2023.

The levels of investment revealed by the AHIC Hotel Investment Forecast over the next four years are testament to an incredibly buoyant market, according to forecasters. “New hotel resorts like Jebel Sifah and the St. Regis Muscat in Oman, the Ritz-Carlton in Sharm el-Sheikh and the MGM Resort and Bellagio Hotel in Dubai are set to continue to make the Middle East one of the most vibrant and diverse tourism destinations in the world,” said James.

The regional hotel pipeline and the future outlook for hotel investment in the Middle East will be discussed in depth at the 16th edition of AHIC, which returns to Madinat Jumeirah in Dubai from April 14-16.

“The AHIC Hotel Investment Forecast is an incredibly valuable piece of research that clearly demonstrates that the Middle East still has so much to offer when it comes to future hotel expansion and investment,” said Jonathan Worsley, chairman, Bench Events, and founder, AHIC. “We’re especially excited to see markets such as Oman and Egypt, which offer incredibly rich and diverse tourism landscapes, return to the forefront of development in the region.”

AHIC Hotel Investment Forecast

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