Middle East and North Africa (MENA) Economies Grow by 5.5% But Benefits are Uneven
The World Bank Group
The economies of the Middle East and North Africa (MENA) region are expected to grow by 5.5% this year —the fastest rate since 2016—followed by a slowing of growth to 3.5% in 2023. Yet this growth is uneven across the region, as countries still struggling to overcome the lasting effects of the COVID-19 pandemic, face jolting new shocks from higher oil and food prices brought on by the war in Ukraine, rising global interest rates, and slowdowns in the United States, China, and the Euro area.The World Bank’s latest economic update, titled “A New State of Mind: Greater Transparency and Accountability in the Middle East and North Africa,” finds that the region’s oil exporting countries are benefitting from high hydrocarbon prices, but oil importing nations confront different circumstances. Oil importers face heightened stress and risk from higher import bills, especially for food and energy, and tightening fiscal space as they spend more on price subsidies to cushion the pain of price rises on their populations.
“All countries in the MENA region will have to make adjustments to deal with significantly higher prices for food and other imports, especially if they lead to an increase in government borrowing or currency devaluations,” said Ferid Belhaj, World Bank Vice President for the MENA region. “What countries need now is smart governance to weather the storm and begin to rebuild after multiple shocks on top of the pandemic.”
Published twice-yearly, the report says that responsive governance will help countries confront these challenges more effectively now and cement the foundations for long term growth. Each MENA Economic Update has an area of special focus, and this report looks at how reforms leading to more transparency and accountability in public institutions can promote a sustainable economic recovery. Countries are in dire need of establishing systems that allow state bureaucracies to measure results, align responsibilities, experiment, and learn from these results.
“Moving towards greater data transparency and accountability is a game changer for the region; it can help countries identify what is working and needs improvement and to act on it,” said Roberta Gatti, World Bank Chief Economist for the MENA region. “It will help them manage risk and shape progress towards a more sustainable and inclusive future. Not only are the potential benefits large, but the reforms needed to put institutions on a learning path are within reach.“
The Bank’s analysis forecasts diverging paths of growth in the region. The Gulf Cooperation Council (GCC) countries are on track to grow by 6.9% in 2022, buoyed by high hydrocarbon earnings, slowing to 3.7% in 2023 as hydrocarbon prices subside. Developing oil exporters are forecast to experience trends like those of the GCC but at lower levels—with 2022 growth expected to increase to 4.1%, led by Iraq, before falling back to 2.7% in 2023. Developing oil importing countries are expected to grow by 4.5% in 2022 and 4.3% in 2023. However, the slowdown of growth in Europe poses a particular risk, as this group of countries relies more on trade with the Euro area—especially the North African oil importers closest to Europe: Tunisia, Morocco, and Egypt.
Across the region, policymakers have introduced measures—especially price controls and subsidies—to make the domestic price of certain goods, such as food and energy, lower than the global price. The report finds that this has had the effect of keeping inflation in MENA lower than in other regions. In Egypt, for example, average year-on-year inflation during the period of March to July 2022 was 14.3%, but it would have been 4.1 percentage points higher at 18.4%, had authorities not intervened.
Some governments have made cash payments to poorer households—a more efficient way of helping the poor deal with rising prices than general market subsidies that lower prices for everyone, including the rich. For Egypt, to lower average inflation by the equivalent of 4.1 percentage points using a subsidy on food and energy prices that benefits the entire population costs 13.2 times more than allowing prices to increase and supporting just the poorest 10 percent of households with a cash transfer.
Governments will incur additional expenses as they increase subsidies and cash transfers to mitigate the damage to the living standards of their populations from higher food and energy prices. For the GCC and developing oil-exporting countries, this is not of much concern now. Windfall increases in state revenues from the rise in hydrocarbon prices have greatly increased their fiscal space and will result in fiscal surpluses for most oil exporters in 2022—even after the additional spending on inflation mitigation programs.
Developing oil importers, however, do not have such a windfall and will have to cut other expenditures, find new revenues, or increase deficits and debt to fund the inflation mitigation programs and any other additional spending. Moreover, as global interest rates rise, the debt service burden for oil importers will increase, as they must pay a higher rate of interest both on any new debt they incur and existing debt they refinance, weighing on countries’ debt sustainability over time—especially for countries with already high debt levels, such as Jordan, Tunisia, and Egypt.
Distributed by APO Group on behalf of The World Bank Group.
The above-featured image is of the Fourth wave of globalisation saw China’s increasing role as a global powerhouse. Getty Images
Is the world retracting from globalisation, setting it up for a fifth wave?
Over the past 25 years there has been lots of research and debate about the concept, the history and state of globalisation, its various dimensions and benefits.
The World Economic Forum has set out the case that the world has experienced four waves of globalisation. In a 2019 publication it summarised them as follows.
The first wave is seen as the period since the late 19th century, boosted by the industrial revolution associated with the improvements in transportation and communication, and ended in 1914. The second wave commenced after WW2 in 1945 and ended in 1989. The third commenced with the fall of the Berlin Wall in 1989 and the disbanding of the former Soviet Union in 1991, and ended with the global financial crises in 2008.
The fourth wave kicked off in 2010 with the recovery of the impact of the global financial crises, the rising of the digital economy, artificial intelligence and, among others, the increasing role of China as a global powerhouse.
More recent debates on the topic focus on whether the world is now experiencing a retraction from the fourth wave and whether it is ready for the take-off of the fifth wave.
The similarities between the retraction period of the first wave and the current global dynamics a century later are startling. But do these similarities mean that a retraction from globalisation is evident? Is there sufficient evidence of de-globalisation or rather “slowbalisation”?
This period was further typified by protectionist sentiments, increases in tariffs and other trade barriers and a general retraction in international trade.
Looking at the current global context, the parallels are remarkable. The world is still fighting the COVID pandemic that had devastating effects on the world economy, global supply chains and people’s lives and well-being.
For its part, the Russia-Ukraine war has caused major global uncertainties and food shortages. It has also led to increases in gas and fuel prices, further disruptions in global value chains and political polarisation.
The increase in the price of various consumer goods and in energy have put pressure on the general price level. World inflation is aggressively on the rise for the first time in 40 years. Monetary authorities worldwide are trying to fight inflation.
Global governance institutions like the World Trade Organisation and the UN, which functioned well in the post-WWII period, now have less influence while the Russian-Ukraine war has split the world politically into three groups. They are the Russian invasion supporters, the neutral countries and those opposing, a group dominated by the US, EU and the UK. This split is contributing to complex geopolitical challenges, which are slowly leading to changes in trade partnerships and regionalism.
Europe is already looking for new suppliers for oil and gas and early indications of the potential expansion of the Chinese influence in Asia are evident.
a movement towards a less connected world, characterised by powerful nation states, local solutions and border controls rather than global institutions, treaties, and free movement.
There’s now talk of slowbalisation. The term was first used by trendwatcher and futurologist Adjiedji Bakas in 2015 to describe the phenomenon as the
continued integration of the global economy via trade, financial and other flows, albeit at a significant slower pace.
The data on economic globalisation paint an interesting picture. They show that, even before the COVID pandemic hit the world in 2020, a deceleration in the intensity of globalisation is evident. The data which represent broad measures of globalisation, includes:
World exports of goods and services. As a percentage of world GDP, these reached an all-time high of 31% in 2008 at the end of the third globalisation wave. Exports fell as a percentage of global GDP and only recovered to that level during the early stages of the fourth wave in 2011. Exports then slowly started to regress to 28% of global GDP in 2019 and further to a low of 26% during the first Covid-19 year in 2020.
The volume of foreign direct investment inflows. These reached a peak of US$2 trillion in 2016 before trending lower, reaching US$1.48 trillion in 2019. Although the 2020 foreign direct investment inflows of US$963 billion are a staggering 20% below the 2009 financial crises level, they recovered to US$1.58 billion in 2021.
Foreign direct investment as percentage of GDP started to increase from a mere 1% in 1989 to a peak of 5,3% in 2007. After a retraction following the global financial crises, it peaked again in 2015 and 2016 at around 3,5%. It then declined to 1,7% in 2019 and 1,4% in 2020.
Multinational enterprises have been the major vehicle for economic globalisation over time. The number of them indicates the willingness of companies to invest outside their home countries. In 2008 the UN Conference on Trade and Development reported approximately 82 000. The number declined to 60 000 in 2017.
Data on world private capital flows (including foreign direct investment, portfolio equity flows, remittances and private sector borrowing) are not readily available. However, Organisation for Economic Co-operation and Development data show that private capital flows for reporting countries reached an all-time high of US$414 billion in 2014, followed by a declining trend to US$229 billion in 2019 and a negative outflow of US$8 billion in 2020.
These declining trends are further substantiated by the evidence of deeper fragmentation in economic relations caused by Brexit and the problematic US/China relations, in particular during the Trump era.
The question now is whether the latest data is:
indicative of either a retraction from globalisation similar to that experienced after the first wave a century ago;
or it is merely a process of de-globalisation;
or slowbalisation in anticipation of the world economy’s recovery from the impact of Covid-19 pandemic and the war in Ukraine?
The similarities between the first wave of globalisation and the existing global events are certainly significant, although embedded in a total different world order.
The current dynamics shaping the world such as the advancement of technology, the digital era and the speed with which technology and information is spread, will certainly influence the intensity of the retraction of the already embedded dependence on globalisation.
Nation states realise that blindly entering into contracts and agreements with companies in other countries, may be problematic and that trade and investment partners need to be chosen carefully. The events over the past three years have certainly shown that economies around the world are deeply integrated and, despite examples of protectionism and threats of more inward-looking policies, it will not be possible to retract in totality.
What may occur is fragmentation where supply chains becoming more regionalised. Nobel prize winning economist Joseph Stiglitz refers to the move to “friend shoring” of production, a phrase coined by US Treasury Secretary Janet Yellen.
It is becoming obvious that the process of globalisation certainly shows characteristics of both de-globalisation and slowbalisation. It’s also clear that the global external shocks require a total rethink, repurpose and reform of the process of globalisation. This will most probably lead the world into the fifth wave of globalisation.
The overwhelming majority of global trade contributes negatively to the United Nations’ (UN) Sustainable Development Goals (SDGs), according to new research, which calls for better guidance for banks and corporates around what sustainable trade should look like.
Released this week by trade data and analytics provider Coriolis Technologies in partnership with MEP Saskia Bricmont and the Greens/European Free Alliance in the European Parliament, Measuring sustainability through trade maps countries’ export and import data against the 17 SDGs to identify negative and positive contributions.
It found that, on a scale of -1 to +1 where -1 means that all trade makes negative contributions, zero is neutral and +1 means that all trade makes positive contributions, world trade scores -0.58, with 80% of global trade by value being unsustainable.
A closer look at the numbers reveals some interesting findings. First, if the SDGs are broken down into their environmental, social and governance (ESG) elements, world trade scores -0.73 with regard to its environmental impact, and an almost entirely negative -0.91 for its social impact. However, when it comes to the ‘G’ in ESG – governance – global trade scores a positive 0.43.
“In other words, the world of trade and trade finance, alongside regulators, has put in place the governance structures to minimise economic risks in the form of employment, economic growth and provisions of basic health, but the price for the environment and for social equality and justice is overwhelmingly high,” the report says. It adds that trade policy can do “significantly more” to promote the basic human rights of trade as represented by the commitment to fair and open trade to promote sustainable cities and communities, responsible consumption, and to shore up the institutions of trade that help peace and justice.
Perhaps unsurprisingly, it is the most advanced economies that have the least sustainable trade, with the G20 nations accounting for some US$18.5tn in value terms in negative contributions to responsible consumption and production (SDG 12).
“These are economies where automotives, consumer electronics and machinery and components are routinely among the top five sectors for both imports and exports,” the report says.
However, while the poorest nations in the world score better, this is because imports are often for subsistence purposes rather than being aimed at luxury or consumption-based markets.
“If we are to meet the ambitious targets laid out at Cop26, we cannot afford to ignore the messages here – that the majority of world trade is unsustainable, and where it is not, it is a symptom of under-development,” the report says.
In its research, which it calls “an initial contribution to the process of creating an automated and consistent mechanism for measuring sustainability”, Coriolis Technologies has built on a methodology established by the UN Economic and Social Commission for Asia and the Pacific, which takes HS codes – the internationally standardised system of names and numbers to classify traded products – and compares them against the 17 SDGs.
For example, trade in tobacco negatively contributes to SDG 3 – good health and wellbeing – while trade in medicine would be a positive contributor. Because the methodology uses HS codes at six-digit level, it is able to distinguish between, for example, a diesel car (870332) and an electric car (870380) or, indeed, a hybrid car (870360), each of which have varying impacts on SDG 7 – clean and affordable energy, and SDG 12 – sustainable consumption.
The methodology isn’t without its shortcomings. For example, while specific goods may not in themselves be sustainable, they can often be used for purposes such as sustainable infrastructure. The same also applies in reverse when it comes to the trade of sustainable goods for non-sustainable purposes. What’s more, Coriolis Technologies adds that the scope to distinguish between resource utilisation for the same product in different countries is limited: “For example, a fruit such as a strawberry produced in the Middle East requires more water and energy to produce than in its indigenous environment,” the report says.
However, industry bodies and regulators are in wide agreement that the SDGs are an adequate taxonomy of reference to enable a comprehensive framework for sustainability, including the International Chamber of Commerce (ICC), which refers to them in its recent position paper on defining and setting common standards for sustainable trade and associated financing.
By providing a quick and simple measurement, Coriolis Technologies has laid bare the enormous amount of work ahead to make global trade more sustainable – but has also provided a call to action for policymakers.
“Since we know the sustainable development goals where the largest negative contributions are likely to be across world trade, we know the levers we should pull,” the report says, adding that too much of world trade contributes negatively to zero hunger, affordable and clean energy, clean water and sustainable cities.
“We also know the sectors which are to blame for the low scores of some countries: automotives, consumer electronics, machinery and components, plastics, iron and steel, and oil and gas. Oil and gas alone contributes some 10% to the value of EU trade, so if we can reduce our dependency on it, we can also reduce the negative contributions to the SDGs,” the report says, adding that the countries that have the worst scores all have automotives in their top five imports and/or exports. As a solution, it puts forward policy incentives towards the use of electric cars and clean energy in order to address the negative role that automotive and fossil fuel trade play at present.
Although Coriolis Technologies admits that the challenge of ensuring trade becomes a positive contributor to sustainable development is not an easy one to address, its development of a model to map out ESG weaknesses in trade should go some way to focusing minds as the trade and trade finance industry attempts to become more sustainable.
As the pandemic-fuelled liquidity begins to wane and the reality of inflation and higher interest rates sets in, many economies will face considerable challenges. Middle East and North Africa (MENA) countries are vying to attract global investors and increase Foreign Direct Investment (FDI). Yet, capital flows are reversing from emerging to developed markets—specifically in the United States, where interest rates are rising to levels not seen since 2018. The year 2018 is illustrative: during that time, emerging markets experienced substantial capital outflows as international investors reduced their exposure and consolidated their risk into emerging economies with fewer perceived risks, given their proactive and progressive economic policies.
Attracting foreign investors into emerging market economies has always been difficult. Nevertheless, thanks to the extended period of near-zero interest rates, emerging markets were blessed with investors hungry for higher returns. The plentiful supply of money coupled with historically low yields in rich countries led investors to explore higher yields in riskier markets across various assets, including public equities, public debt, private equity, and venture capital. The lower cost of capital allowed investors to finance opportunities that otherwise would have been unfeasible.
Unfortunately, the party is over, and the pain is just beginning. The US Federal Reserve has started an aggressive interest rate hiking campaign, which will likely be the sharpest rise in interest rates since former chair of the Federal Reserve Paul Volcker’s war on inflation from 1979 to 1982. Many economists believe this will likely lead to a recession in the world’s biggest economy.
A US economic slowdown or a recession couldn’t come at a worse time for emerging markets, particularly those in MENA, where most are fighting chronic unemployment, especially among youth and women, slowing growth, and higher debt levels. Large oil-exporting countries in the Gulf Cooperation Council (GCC) — such as Qatar, Saudi Arabia, and the United Arab Emirates (UAE) — are better positioned given heightened commodity prices. However, their lack of interest rate autonomy given the dollar peg limits their ability to deviate their monetary policy from that of the United States.
Additionally, the global demand destruction cannot be ignored as the post-pandemic surge in demand levels off, with consumers beginning to feel the pinch from inflation and rising interest rates. This may put a damper on global energy demand and tourism. Inflation also impacts global emerging markets, causing a perfect storm for the arrival of tough economic times. Currency depreciation against the dollar is increasing the cost of imports and repaying foreign currency debts for banks, companies, and governments, many of which racked up significant debt during the pandemic.
Research suggests that the impact of US monetary tightening on emerging markets will vary depending on the factors for the change. Interest rate hikes driven by US economic expansion will likely lead to positive spillover effects that benefit more than hurt emerging markets and, therefore, are neutral on capital flows. On the other hand, interest rate hikes to fend off inflation will likely lead to emerging markets disruption. Here, there are two key points to mention. First, there is a more significant effect on emerging markets from rising interest rates due to inflation than those due to growth. Second, emerging economies with stable domestic conditions and policies tend to fare better and experience less volatility. In a global economic environment with slower growth, higher cost of capital, and a shrinking capital pool for riskier assets, discerning international investors will consolidate their investments in the highest-quality emerging markets.
The Goldilocks moment experienced in markets over the past couple of years is subsiding. Geopolitical risk, inflation, and US interest rates are all rising. In addition, two crucial macroeconomic trends will impact the future capital flows to emerging markets. First, globalization policies that have focused overwhelmingly on cost efficiency and rationalization will now focus on resiliency and values-based investments. At an Atlantic Council event on April 13, US Treasury Secretary Janet Yellen articulated a blueprint for US trade policy, stating, “The US would now favor the friend-shoring of supply chains to a large number of trusted countries that share a set of norms and values about how to operate in the global economy.”
Second, Environmental, Social, and Governance (ESG) issues are gaining more attention with countries and companies putting them on the agenda. For an indication of what’s to come, consider Total, the French oil and gas giant, marking its shift to renewable energy and rebranding to TotalEnergies, as well as Engine No. 1, a US impact hedge fund, hijacking ExxonMobil’s board to drive a green strategy at the company. As a result of the confluence of these complex issues on top of challenging macro-economic concerns, investor appetite for emerging market assets is weakening. It will become more discerning in the coming years.
But all isn’t lost. There will be divergent outcomes and risks depending on the domestic conditions of each emerging market. Thoughtful investors will continue to seek opportunities in emerging markets, especially in private markets, where the predominant share of opportunities exists. However, as financial conditions tighten, differentiation between emerging markets will increase. MENA countries can better position themselves amongst others competing for capital by:
Attracting and empowering strong policymakers to make dynamic and bold decisions that complex changes in the global economy require. Deepening the bench of talented policymakers should be another priority.
Driving policies supportive of private sector development and investment. Reducing government-owned enterprises and providing ample space for private companies to grow and prosper on an even playing field is critical to building a dynamic economy.
Continuing to nurture the nascent entrepreneurial ecosystem. Entrepreneurial economies are consistently more resilient and lead to better outcomes over the long term.
Enhancing regional and international economic integration through bilateral and multilateral agreements with more robust economies. Proactive engagement with multilateral financial institutions will also increase financial stability and resilience.
Standardizing policies according to global norms for greater regional and international integration. Investor appetite is greatly improved in emerging markets that adopt regulations and standards from developed countries.
Increasing transparency and reducing uncertainty around laws and regulations. Investors and companies need more clarity on the game’s rules in order to play it confidently and competently.
Several MENA countries continue to take bold steps to improve their global competitiveness. One such example is the privatization programs of government-owned enterprises in Egypt, Saudi Arabia, and the UAE to increase liquidity in local capital markets, improve transparency, and expand private sector participation. Those countries that maintain their momentum will be clear winners in the coming years. History is rich with evidence that economic challenges are followed by periods of historic gains.
Amjad Ahmad is Director and Senior Fellow at the Atlantic Council’s empower ME Initiative at the Rafik Hariri Center for the Middle East.
Just as the war in Ukraine is disrupting supplies and fuelling already-high inflation, economic growth in the Middle East and North Africa (Mena) region is forecast to be “uneven and insufficient” this year, according to the World Bank.
Growth rates in the region envisage a narrative of diverging trends. As oil exporters benefit from surging prices, higher food prices have hit the whole region.
The GCC is expected to notch up 5.9% growth this year, buoyed by oil prices and helped by a vaccination rate much higher than the rest of Mena. But most Mena economies — 11 out of 17 — are not seen exceeding their pre-pandemic GDP per capita in 2022, says the World Bank.
GCC economies have seen a relatively strong start to 2022 with the hydrocarbons sector having benefited from increased oil production so far this year, says Emirates NBD. Its survey data for the first quarter of the year point to a solid expansion in non-oil sectors as well, with strong growth in business activity in the UAE, Saudi Arabia and Qatar. In the wider Mena region, however, countries like Egypt, Morocco and Tunisia – home to large, mainly urban populations, but lacking oil wealth – are struggling to maintain subsidies for food and fuel that have helped keep a lid on discontent.
Egypt has been struggling to maintain a bread subsidy programme used by about 70mn of its citizens with the coronavirus pandemic hitting the national budget, and surging wheat prices are exacerbating the challenge.
The World Food Programme has warned that people’s resilience is at “breaking point,” in the region. Global foods costs are up more than 50% from mid-2020 to a record and households worldwide are trying to cope with the strains on their budgets. In North Africa, the challenge is more acute because of a legacy of economic mismanagement, drought and social unrest that’s forcing governments to walk a political tightrope at a precarious time.
The MENA region’s net food and energy importers are especially vulnerable to shocks to commodity markets and supply chains resulting from Russia’s war on Ukraine, according to the International Monetary Fund.
That’s in countries where the rising cost of living helped trigger the Arab Spring uprisings a little over a decade ago. The region’s GDP is forecast to rise 5.2% this year after an estimated 3.3% expansion last year and a 3.1% contraction in 2020.
“Even if this high growth rate for the region as a whole materialises in this context of uncertainty, and there’s no guarantee that it will…(it) will be both insufficient and uneven across the region,” according to Daniel Lederman, World Bank lead economist for the MENA region.
Countries that are net importers of oil and food and which entered 2022 with high levels of debt as a ratio of GDP are most vulnerable, he said, pointing to Egypt and Lebanon as examples. Even before Russia invaded Ukraine, food prices had been rising around the world, driven by the higher shipping costs, energy inflation and labour shortages that have followed in the pandemic’s wake, along with extreme weather. Food crisis was likely to worsen in the Middle East and North Africa as Covid-19 continued, according to a report from the regional directors of Unicef, the Food and Agriculture Organisation, WFP and World Health Organisation in July 2021.
Originally posted on Algerian Freedom Alliance: by Scander Safsaf. 10/04/2018. Algerian Freedom Alliance. A Bicephalous Truth By deterrence I meant benefiting from a nuclear one, and applying a form of state coercion also seen as a deterrence. The very “raison d’être” of such security apparatus, beyond the subject of submission, as I will detail later,…
Deep in the Algerian desert, a Sahrawi-run event puts Western Sahara’s struggle for liberation on the big screen. 25 November 2022 The image above is of GOV.UK By Ariel Sophia Bardi, a freelance writer and photographer based in Rome. AUSERD REFUGEE CAMP, Algeria—At about 10 p.m., in the middle of the Sahara desert, just two lights […]
Originally posted on The Further Adventures of Shannon and Brodie: Once again with the wanderlust. This time for Africa. Waka waka into Casablanca jetlagged and a day late. Don’t fly TAP Air. The fields were dirt brown as we descended toward the airport, but hey it’s winter here too. 33 degrees north latitude puts us…
This site uses functional cookies and external scripts to improve your experience.
Privacy & Cookies Policy
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.