Space is rapidly becoming a new domain for Middle Eastern states to project their power and vie for leadership in the region. The United Arab Emirates (UAE) is a case in point, with a mission to Mars to be launched this week. A national countdown to July 15 is meant to excite Emiratis and Arabs in general, for it marks the first time an Arab state launches a mission into outer space.
The Emirati government has named its Mars Mission Hope Probe, coloring it with a pan-Arab sentiment. The mission invokes past Arab Islamic achievements in the sciences and incites Arabs to maintain that spirit. There is no shortage of nationalist fervor, either. The UAE has timed the completion of its mission before the 50th anniversary of the federation’s founding in December 2021. It has also tied it to its 100-year goal of establishing a human colony on Mars by 2117.
The UAE has been marketing this science-driven apolitical Arab narrative of hope, but its space policy is more than that. It aims to reinforce its newfound regional power status and align the Middle East’s geopolitical order to its advantage. It has also, by default, ushered in a regional space race, something relatively novel in the Middle East. The UAE’s ability to complete its Mars Mission, and how this factors into its activist foreign policy, will determine the degree to which the UAE transforms itself and the region in the process.
Though the Israeli space program is the oldest in the region, it has not been a priority for Israel. That is not the case with Dubai, which founded the Mohammed bin Rashid Space Center in 2006. The center was expanded by the federal government in 2014 with the creation of the UAE Space Agency. Knowing that it does not have the expertise, the UAE partnered with three U.S. academic institutions to jointly design and build its mission to Mars. The Emiratis assembled a team to support their effort, with an average age of below 35, a third of whom are women, headed by a young female minister tasked with advancing science. These steps reflected the UAE’s branding of itself as a champion of youth and women, while marketing this enterprise as an international collaboration that included manufacturing in the United States and a launch from Japan.
Other than Israel, Iran has also been active regionally in space. Its international collaboration has not been as intense as the UAE’s. Yet Iran has been producing satellites since establishing the Iran Space Agency in 2004, making it the second space state in the region. It has also sent animals into space, and launched a military satellite last April. Tehran’s early collaboration with Russia and China paid off with its first locally built satellite in 2009, which it named Omid, or Hope, the same name the Emiratis chose for their Mars mission.
The UAE is not the first Arab state to show an interest in space. Saudi Arabia led a pan-Arab effort in 1976 to establish the satellite operator Arabsat. The Saudis also produced the first Arab astronaut, Prince Sultan bin Salman. His participation in a mission of the space shuttle Discovery in 1985 was to be followed by a Saudi space policy, but this was put on hold after the crash of the Challenger.
By venturing into this domain, the UAE wants to position itself in a field long occupied by regional adversaries such as Israel and Iran. Emirati thinking is focused on differentiating the UAE from others and advancing its own agenda despite challenges. The UAE has much to gain if its mission to Mars succeeds—a feat only accomplished by the United States, the former Soviet Union, India, and the European Space Agency. Space is the Emiratis’ next convenient card to raise their country’s standing. Doing this would allow the UAE to bolster its post-2011 rise as a middle power in a region whose traditional centers—Egypt, Iraq, and Syria—have waned. This would grant the UAE an increasing say on thorny regional issues, such as peace with Israel, a nuclear deal with Iran, the Yemen conflict, and the dispute within the Gulf Cooperation Council.
The UAE’s actions in space have not gone unnoticed in the region. Saudi Arabia and Turkey created space agencies days apart in December 2018. Egypt joined the club soon thereafter in August 2019. Not wanting to allow this moment of regional attention to space to go to waste, the UAE established the first pan-Arab Space Coordination Group in 2019. It brought together eleven Arab states whose first goal is to develop “813,” a satellite to monitor earth named after the year in which the famed Arab House of Knowledge reached its peak upon Al-Ma’mun’s ascension to the caliphate. However, paying homage to Arab history did not mean the UAE would avoid standing out. It left for itself the more high-profile feat of a Mars exploration mission, while leaving the less ambitious goal of building a satellite to the Arab conglomerate.
Arabs and their neighbors have historically set their sights on the sea and land for sustenance. Now, space offers a new arena for potential development, competition, and conflict. For the UAE, its ability to shape regional geopolitics to its advantage is filled with hazards, especially with its risky foreign interventions. If successful, its space program can offset some of these risks and provide a chance for a UAE-centric worldview to prevail in an ever-changing Middle East.More on:
Authors Olivia Macharis is a researcher at the Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut and Nadim Farajalla is Program Director of the Climate Change and Environment Program at the Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut. They came up with this realistic picture of the Middle East’s Threat Multiplier. It is published on Project Syndicate of 12 June 2020.
The picture above is that of An Egyptian boy holding bread and flashing the victory sign shouts slogans at Cairo’s Tahrir Square on April 1, 2011 as he joins tens of thousands of Egyptians who gathered, issuing calls to “save the revolution” that ousted president Hosni Mubarak and to rid of the country of the old regime. AFP PHOTO/STR (Photo credit should read -/AFP/GettyImages)
Although many factors contributed to the mass protest movements in Iraq in recent years, and in Egypt a decade ago, climate change was the common denominator. By exacerbating endemic problems such as water scarcity and food insecurity, global warming threatens to plunge an already unstable region into the abyss.n Egyptian boy holding bread and flashing the victory sign shouts slogans at Cairo’s Tahrir Square on April 1, 2011 as he joins tens of thousands of Egyptians who gathered, issuing calls to “save the revolution” that ousted president Hosni Mubarak and to rid of the country of the old regime. AFP PHOTO/STR (Photo credit should read -/AFP/GettyImages) Survey the Middle East and North Africa (MENA), and you will find no shortage of crises, from escalating tensions between the United States and Iran to the cycles of violence in Libya, Syria, Yemen, and elsewhere. Countless young people across the region feel a sense of despair as they confront the daily realities of poor governance, economic immobility, and sectarian violence. Now, the COVID-19 crisis is putting increasing and unprecedented pressure on the global economy, state institutions, and livelihoods. It has also highlighted the dire consequences of health, social, and economic inequality. And as bad as these problems are on their own, all will be exacerbated and magnified by an even larger crisis: the devastating impacts of climate change. With its largely arid conditions, the MENA region is particularly vulnerable to the physical impacts of climate change. It is one of the world’s most water-scarce regions, with a high dependency on climate-sensitive agriculture. Along with rising temperatures, the region is already experiencing a wide range of deteriorating environmental conditions, including decreased rainfall in Iraq, longer droughts in Syria, more severe flash flooding in Jordan and Lebanon, increasingly intense cyclones in Yemen and Oman, and rising sea levels. There is also evidence of rapid desertification regionwide, as well as unprecedented heat waves and increasingly frequent and intense dust storms. Looking ahead, researchers warn that summer temperatures in the region will increase twice as fast as average global temperatures. This will lead to increased evaporation rates and accelerated loss of surface water, which will reduce the productive capacity of soils and agricultural output. Projections by the Intergovernmental Panel on Climate Change also warn of rising sea levels and an increase in the frequency and intensity of extreme weather events. In large parts of the region, the combination of worsening heat waves and increasing air pollution owing to sand and dust storms will likely compromise human habitability and force people to migrate. Climate change not only has serious implications for the environment and public health, but also for economic growth, livelihoods, and peace. Climate-induced impacts have the potential to reinforce factors that lead to or exacerbate conflict and instability. For one, resource scarcity may undermine the livelihoods of vulnerable households and communities, potentially leading to increasing competition, which may turn violent in the absence of conflict resolution institutions. Most vulnerable are fragile states and communities with a history of violence. In Iraq and Syria, the occurrence of devastating droughts between 2007 and 2012, combined with governments’ inability to provide relief to vulnerable populations, favored radicalization and recruitment efforts by jihadist militias, including the Islamic State. Other risks of conflict arise when growing resource scarcity is met with inadequate government action, which may cause grievances among the population and increase tensions along ethnic, sectarian, political, and socioeconomic lines. Water scarcity and contamination have already triggered recurrent protests in Iraq, and rising food prices have fueled protest movements in Egypt and other countries. The region desperately needs to start developing and implementing more robust adaptation strategies before it is too late. UNPREPARED FOR THE WORST Most countries in the region are woefully behind when it comes to preparing for the physical effects of climate change on the environment and for the socioeconomic effects on much of the population. Many governments are unable or unwilling to tackle issues related to poverty, slow and unequal economic growth, high unemployment, lack of basic services, and widespread corruption. Instead, the region’s governments have long relied on what political scientists call the “authoritarian bargain,” an implicit contract in which the state provides jobs, security, and services in exchange for political loyalty (or at least obeisance). This contract assumes that the population will remain politically inactive. But protest movements over the last decade, from the Arab Spring to more recent demonstrations in Algeria, Iraq, Lebanon, Jordan, and other countries, have shown that people across the region want to renegotiate. In many countries, the protests are the result of worsening economic and political conditions, many of which stem from strained government resources that have led to a decline in the provision of public services. With climate change projected to put additional pressure on water and food security, livelihoods, health, and overall living standards, public discontent is likely to keep growing in the coming years, resulting in a heightened risk of political instability and conflict. The linkages between climate change, resource scarcity, and social unrest are of course complex. Examining two cases – one dealing with water scarcity and contamination, the other with rising food prices – can help shed urgently needed light on these dangerous dynamics. WATER POLITICS IN IRAQ A good place to start is by considering Iraq’s water resources, which have been under increasing stress for more than three decades. As a result of both natural and anthropogenic causes, water quantities have decreased and water quality has deteriorated. The natural phenomena include increasing climate variability and lower annual precipitation, resulting in a lack of snowfall in the headwaters of the Tigris and Euphrates. The anthropogenic causes center around increasing water demand, inadequate government policies, and dam-building by upstream neighbors Syria, Turkey, and Iran. The Tigris and Euphrates are Iraq’s most important sources of freshwater. These twin rivers converge in al-Qurna, in the southern Basra governorate, to form the Shatt al-Arab River and drain toward the Gulf (see map). Both rivers originate in Turkey, with the Euphrates cutting through Syria before reaching Iraq. Several of the rivers’ tributaries originate in Iran, with the Greater Zab, the Lesser Zab, and the Diyala flowing into the Tigris. In total, more than 50% of the country’s renewable water resources originate outside of its borders.
Of particular concern to Iraq is Turkey’s controversial Southeastern Anatolia Project (GAP), which is located at the Euphrates-Tigris Basin in the upper-Mesopotamian plains. At an estimated cost of $32 billion, the GAP is one of the world’s largest river-basin development projects. Other serious concerns include Iranian dam-building activity and an expected increase in Syrian water usage. Regional cooperation to improve water management is limited, and political negotiations have so far fallen short of concluding a legally binding, comprehensive, and long-term agreement. On the domestic front, while rapid population growth, urbanization, and increasing industrial production have driven up water demand, decades of conflict and sanctions, along with inadequate government policies and the lack of a regulatory framework for sustainable water management, have undermined investment in supply. The main challenges include chronic deterioration of infrastructure, inefficient irrigation and drainage, lack of water treatment facilities, and weak regulation of agricultural runoff and discharges of sewage, industrial waste, and oil byproducts. In addition, the continuous decline in the water levels of the Shatt al-Arab has led to severe saltwater encroachment from the Gulf into the river. DISASTER AREA Basra, a port city with direct access to the Persian Gulf, was once glorified as the “Venice of the East” for its myriad of freshwater canals lined with palm trees. The surrounding governorate accounts for most of Iraq’s oil production, with nearby West Qurna considered to be one of the world’s most lucrative oilfields. But these strategic assets have not benefited the public, because government mismanagement and negligence have turned Basra into a decrepit and dysfunctional city, plagued by strained utilities and broken infrastructure. Its waterways have become open sewers that are poisoning the population. In the summer of 2018, Basra became the epicenter of an environmental and socioeconomic disaster that threatened the stability of the entire region. In July, Iraqis took to the streets to demand basic services such as clean drinking water, electricity, jobs, and an end to pervasive corruption. Then, in August, an outbreak of gastrointestinal illnesses, most likely caused by water contamination, sent tens of thousands of people seeking medical assistance in increasingly overwhelmed hospitals. Later that month, the UN-affiliated Independent High Commission for Human Rights called on the Iraqi government to declare Basra a “disaster area.” The water supply problems fueled further public outrage. Street protests resumed and gradually intensified. By September 2018, the protests had turned violent, with deadly clashes between protesters and security forces. Demonstrators burned government and political party offices and attacked the headquarters of the popular mobilization forces and the Iranian consulate, voicing anger over the growing influence of Iran-backed militias in the city. By early October, 18 civilians had been killed, and another 155 had been injured. While a wide range of long-neglected issues fueled the protests, water scarcity was cited as the most immediate cause or trigger. According to one civil servant quoted in The Independent, “The water shortages have made all the other problems gather and explode. It’s so extreme because it’s water, it’s essential for life.” Concerns remained that the health of the Iraqi people would continue to be affected unless the water situation improved drastically and quickly. Despite efforts to contain the outbreak of waterborne diseases and despite promises by the government to improve water infrastructure, it did not. In October 2019, the unrest spread to Baghdad, where protesters demanded economic reform, an end to corruption, and the provision of basic services, including clean water and electricity. A brutal crackdown by security forces resulted in more than 100 deaths in the first five days. Still, the demonstrations gained momentum, with protesters going so far as to call for an overhaul of the entire sectarian political system. According to the UN’s special envoy to Iraq, more than 400 people were killed, and another 19,000 were injured, just between October 1 and December 3 last year. EGYPT’S TROUBLED WATERS Likewise, climate change and politics have become inextricably intertwined in Egypt, where agricultural production and food security are threatened by acute water scarcity and other climate-related challenges. Egypt is also heavily reliant on food imports, which makes it all the more vulnerable to the impact of adverse weather events on global output and prices. Similar to the situation in Iraq, increasing water stress in Egypt reflects not only climate change, but also rapid population growth and resource mismanagement. The government bears a significant part of the responsibility, as a lack of treatment facilities, poor infrastructure maintenance, and weak regulations against dumping domestic, agricultural, and industrial effluent have all created water scarcities. Egypt’s water dependency ratio is one of the world’s highest, with the Nile River providing more than 95% of its total supply. Approximately 86% of the Nile’s total volume comes from the Ethiopian Highlands, flowing through Sudan before reaching Egypt (see map). As a result, water allocation has long been a source of political tension among Egypt, Ethiopia, and Sudan. The biggest challenge to Egypt’s water supply currently comes from the Grand Ethiopian Renaissance Dam project. At an estimated cost of $4.8 billion, the dam’s construction is a crucial step toward energy security for Ethiopia. For Egypt, however, the project poses a significant threat to its water supply, especially with Ethiopia becoming the dominant power in the Nile River Basin.
Egypt’s economy is highly dependent on agriculture, which itself is almost entirely dependent on irrigation, accounting for over 85% of the country’s total water usage. Egypt’s food production is thus severely restricted by rising temperatures and more frequent droughts, which translate into higher water demand and lower agricultural yields. Worse, climate models show that Egypt’s national food production could decline by anywhere from 11% to 50% by 2050, depending on the level of warming. Moreover, the Nile Delta, Egypt’s breadbasket, is subsiding and extremely vulnerable to sea-level rise. Higher sea levels are expected to affect around 30% of fertile land in the Nile Delta within this century. With tightening resource constraints and a growing population, Egypt’s dependence on imported food is growing, as is its vulnerability to supply and price risks on the global market. The Egyptian population was hit particularly hard by the global food crisis of 2006-08, which came at a time when the country’s domestic production was weakened by severe water scarcity and debilitating agricultural reforms. BREAD, FREEDOM, AND SOCIAL JUSTICE As world commodity prices rose in 2007, Egypt’s government was unable to contain domestic food price inflation, owing to increasing resource scarcity, a corrupt and unsustainable food-subsidy system, and other structural problems. The annual rate of growth in food prices soared from 6.9% in December 2007 to a peak of 31% in August 2008, compared to an average of only 4% in the early 2000s. Rising food prices eroded the purchasing power of the population, causing poverty and food insecurity to rise. Between 2005 and 2008, the incidence of extreme poverty – defined as the inability to meet basic food needs – increased by about 20%, and a growing share of the population became dependent on government-subsidized bread. When the government struggled to meet demand, bread shortages became the focus of a wave of anger at perceived official incompetence, indifference, and corruption. On April 6, 2008, in response to low wages and rising food prices, Egyptian textile workers in the northern town of Mahalla al-Kubra organized a strike. Residents took to the streets, participating in the biggest demonstration that Egypt had seen in years. Police responded with live ammunition to disperse the crowds and arrested more than 300 people. The strike spread to other cities, including Cairo, albeit not with the same intensity. According to news reports, the demonstrators’ complaints were mainly economic: higher food prices, stagnant wages, and “unprecedented” inequality. Many view the Mahalla protests as a precursor to the Arab Spring less than three years later. Then, in 2010, fires in Russia and floods in Pakistan disrupted global wheat and rice markets, and the prices of basic foods in Egypt rose again (see graph). By the end of the year, Egyptians had been pushed to the brink by the sharp increases in food prices, escalating unemployment, chronic government corruption, rigged parliamentary elections, lack of political freedoms, growing concern about police brutality, and crackdowns on the media and universities. Resentment toward Egyptian President Hosni Mubarak’s 30-year-old regime was growing. Social media had raised awareness of state repression and the fall of Tunisian President Zine El Abidine Ben Ali on January 14, 2011, gave Egyptians hope that political change was possible.
Two weeks later, thousands of protesters poured into Cairo’s Tahrir Square, demanding dignity, democracy, and better livelihoods for all. One of the popular chants called for “bread, freedom, and social justice” (“aīsh, huriyya, adala igtima‘iyya”). As the call for “aīsh” indicates, the accessibility and affordability of food was part of the population’s key grievances against the government. And although rising food prices were not the main factor behind the uprising, they likely played an important role in the sequence of events that led to nation-wide demonstrations and deadly unrest. Protest movements were met with extreme police violence and the excessive use of force by the military. Reported deaths in January and February amounted to 846 persons, in addition to mass arbitrary arrests and many cases of abuse and torture. THREATS, MULTIPLIED Resource scarcity and the lack of basic services are feeding public frustration, social unrest, and broader instability throughout the MENA region. In Iraq, water scarcity and contamination have given rise to recurrent demonstrations in Basra, and also contributed to the protest movement that started in Baghdad in October 2019. In Egypt, steep increases in domestic food prices led to riots and sporadic protests in 2008 and contributed to the uprising in 2011. Basic services such as running water, sanitation, stormwater drainage, solid-waste management, electricity, and access to staple foods, but also – as highlighted by the COVID-19 pandemic – basic health care, social protection, and emergency response mechanisms, are the pillars on which governments build relationships with their citizens. The collapse of one or more severely erodes public trust and can lead to social upheavals, as demonstrated again by the recent uprisings in Lebanon, Jordan, Sudan, and other countries. At the heart of the water and food scarcities in Egypt, Iraq, and other countries lie poor governance, weak regulation, and a lack of cross-border cooperation. But looming large in the background is a changing climate, which has exacerbated these problems. As the ultimate threat multiplier in a region that is extremely vulnerable to its effects, it must not be overlooked. Given the risks, it is crucial that governments in the MENA region make adaptation efforts a top priority. If anything, the COVID-19 pandemic has underscored this need. Countries with preset plans have contained the spread of the coronavirus and managed its consequences much better than those with no plans. Likewise, confronting climate change requires developing comprehensive national and regional strategies that take into account the projected effects on water resources, agriculture, and human health. It is up to MENA governments to start building more resilience. The climate will not wait for them.
Business Maverick tells us the Expats are leaving Dubai and that’s bad news for the economy
It’s a choice facing millions of foreigners across the Gulf as the fallout from the pandemic and a plunge in energy prices forces economic adjustments.
“Dubai is home for me,” said Sissons, who owned a small cafe and worked as a freelance human resources consultant. But “it’s expensive here and there’s no safety for expats. If I take the same money to Australia and we run out of everything, at least we’ll have medical insurance and free schooling.”It’s a choice facing millions of foreigners across the Gulf as the fallout from the pandemic and a plunge in energy prices forces economic adjustments. Wealthy Gulf Arab monarchies have, for decades, depended on foreign workers to transform sleepy villages into cosmopolitan cities. Many grew up or raised families here, but with no formal route to citizenship or permanent residency and no benefits to bridge the hard times, it’s a precarious existence.
The impact is starkest in Dubai, whose economic model is built on the presence of foreign residents who comprise about 90% of the population.
Oxford Economics estimates the United Arab Emirates, of which Dubai is a part, could lose 900,000 jobs — eye-watering for a country of 9.6 million — and see 10% of its residents uproot. Newspapers are filled with reports of Indian, Pakistani and Afghan blue-collar workers leaving on repatriation flights, but it’s the loss of higher earners that will have painful knock-on effects on an emirate geared toward continuous growth.
“An exodus of middle-class residents could create a death spiral for the economy,” said Ryan Bohl, a Middle East analyst at Stratfor. “Sectors that relied on those professionals and their families such as restaurants, luxury goods, schools and clinics will all suffer as people leave. Without government support, those services could then lay off people who would then leave the country and create more waves of exodus.”
With the global economy in turmoil, the decision to leave isn’t straightforward. Dubai residents who can scrape by will likely stay rather than compete with the newly unemployed back home. The International Labor Organization says more than 1 billion workers globally are at high risk of pay cuts or job losses because of the coronavirus.
Some Gulf leaders, like Kuwait’s prime minister, are encouraging foreigners to leave as they fret about providing new jobs for locals. But the calculation for Dubai, whose economy depends on its role as a global trade, tourism and business hub, is different.
The crisis will likely accelerate the UAE’s efforts to allow residents to remain permanently, balanced against the status of citizens accustomed to receiving extensive benefits since the discovery of oil. For now, the UAE is granting automatic extensions to people with expiring residence permits and has suspended work-permit fees and some fines. It’s encouraging local recruitment from the pool of recently unemployed and has pushed banks to provide interest-free loans and repayment breaks to struggling families and businesses.
A Dubai government spokesperson said authorities were studying more help for the private sector: “Dubai is considered home to many individuals and will always strive to do the necessary to welcome them back.”
Dubai’s main challenge is affordability. The city that built its reputation as a free-wheeling tax haven has become an increasingly costly base for businesses and residents. In 2013, Dubai ranked as the 90th most expensive place for expatriates, according to New York-based consultant Mercer. It’s now 23rd, making it the priciest city in the Middle East, though it slipped from 21st place in 2019 as rents declined due to oversupply.
Education is emerging as a deciding factor for families, especially as more employers phase out packages that cover tuition. Though there’s now a wider choice of schools at different price points, Dubai had the region’s highest median school cost last year at $11,402, according to the International Schools Database.
That will likely lead parents to switch to cheaper schools and prompt cuts in fees, according to Mahdi Mattar, managing partner at MMK Capital, an advisory firm to private equity funds and Dubai school investors. He estimates enrollments may drop 10%-15%.
Sarah Azba, a teacher, lost her job when social distancing measures forced schools online. That deprived her of an important benefit; a free education for her son. So she and the children are returning to the U.S., where her 14-year-old son will go to public school and her daughter to college. Her husband will stay and move to a smaller, cheaper home.“Separating our family wasn’t an easy decision but we had to make this compromise,” Azba said.
For decades, Dubai has thought big, building some of the world’s most expansive malls and tallest buildings. From the desert sprang neighborhoods lined with villas designed for expat families lured by sun and turbo-boosted, tax-free salaries. New entertainment strips popped up and world-class chefs catered to an international crowd. But the stress was building long before 2020. Malls were busy but shoppers weren’t spending as much. Residential properties were being built but there were fewer buyers. New restaurants seemed to cannibalize business from old.
The economy never returned to the frenetic pace it enjoyed before the 2008 global credit crunch prompted the last bout of expatriate departures. Then, just as it turned a corner, the 2014 plunge in oil prices set growth back again. The Expo 2020, a six-month exhibition expected to attract 25 million visitors, was supposed to be a reset; it’s now been delayed due to Covid-19.
Weak demand means recovery will take time. Unlike some Middle Eastern countries, the UAE isn’t seeing a resurgence in Covid-19 infections as it reopens, but its reliance on international flows of people and goods means it’s vulnerable to global disruptions.
Emirates Group, the world’s largest long-haul carrier, is laying off employees as it weighs slashing some 30,000 jobs, one of the deepest culls in an industry that was forced into near-hibernation. Dubai hotels will likely cut 30% of staff. Developers of Dubai’s man-made islands and tallest tower have reduced pay. Uber’s Middle East ride-hailing unit Careem eliminated nearly a third of jobs in May but said this week business was recovering.
Dubai-based Move it Cargo and Packaging said it’s receiving around seven calls a day from residents wanting to ship their belongings abroad. That compares with two or three a week this time last year. Back then, the same number of people were moving in too. Now, it’s all outward bound.
Marc Halabi, 42, spent the past week reluctantly sorting belongings accumulated over 11 years in Dubai. Boxes line the rooms as he, his wife and two daughters decide what to ship back to Canada. An advertising executive, Halabi lost his job in March. He’s been looking for work that would allow the family to remain but says he can’t afford to hold out any longer.
“I’m upset we’re leaving,” Halabi said. “Dubai feels like home and has given me many opportunities, but when you fall on hard times, there isn’t much help and all you’re left with is a month or two to pick up and move.”
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.
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.
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.
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.
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.
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.
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:
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).
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.
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.
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).
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.
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
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.
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.
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.
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!
Oman’s Ministry of Technology and Communications (MTC) has committed to a memorandum of cooperation (MoC) with BankDhofar at the Sas Center for the 4th Industrial Revolution (4IR), in order to manage a technology innovation lab at the center.
The MoC was reportedly signed by Dr Salim bin Sultan Al Ruzaiqi, CEO at MTC, and Abdul Hakeem Omar Al-Ojaili, CEO at BankDhofar.
The innovation lab has been established to help students and local Fintech startups, as they focus on developing innovative financial technology products and services.
“The Ministry has launched the SAS Center for the 4th Industrial Revolution to keep pace with the current developments in the ICT sector. Signing this MoC with BankDhofar reflects the significant role of the private sector in supporting this dynamic sector and the Omani youth initiatives in entrepreneurship.”
He added that through this cooperation, they aim to create an encouraging environment that can help develop useful Fintech solutions, which could become part of the 4th IR technologies.
He also said the project aims to encourage and support Oman’s private sector organizations to continue to empower the nation’s emerging technology fields.
“The innovative lab at Sas Centre for 4th Industrial Revolution serves our vision of contributing to such projects of national value, and it also contributes to the development of the Fintech field in general.”
“We are in the midst of the 4th Industrial Revolution where the banking sector has to seize the opportunity and take part, supporting the youth and encouraging them to become effective in a field which will positively contribute to the national economic growth in the future.”
MTC and BankDhofar will work cooperatively to establish, host, and manage the innovation lab. They will provide mentorship and training for Omani students, staff, local startups and Fintech firms.
In December 2019, Bank Muscat, the leading financial services provider in the Sultanate, revealed that the Central Bank of Oman had approved the institution’s request to establish a $100 million (appr. OMR38.5 million) nationwide, strategic Fintech investment program.
The investment program is reportedly part of Bank Muscat’s strategic growth initiative.Sponsored Links by DQ Promote
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.
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:
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.
The Saudi Entertainment Ventures Company (Seven), established by the Public Investment Fund (PIF) and mandated to invest, develop and operate entertainment destinations in Saudi Arabia, has announced the expansion of new entertainment complexes to prime locations across the kingdom.
RIYADH, These will delight residents and tourists alike and contribute to positioning Saudi Arabia as a hub for entertainment and leisure, said a statement from Seven.
The entertainment complexes will meet the fast-growing tourism sector and contribute to realising the goals outlined in Saudi Vision 2030, it stated.
These projects are being developed in key strategic geographic locations, providing large resident populations with innovative leisure choices that will appeal to all the family. Each complex will feature several entertainment and leisure choices including cinemas, play areas, rides, food and beverage (F&B) outlets, attractions and more, it added.
Chairman Abdullah Al Dawood said Seven is building the entertainment ecosystem of the kingdom, having already opened the first cinema in Saudi Arabia in 35 years.
“We have a clearly structured development plan to build 20 entertainment destinations, 50 cinemas and two large theme parks in prime locations across the kingdom,” stated Al Dawood.
In Jeddah, Seven will develop several entertainment complexes adding to the leisure choices for over four million residents and visitors.
With entertainment complexes coming up by the azure waters of the Red Sea as well as in areas that are popular among residents, the leisure ecosystem of Jeddah will witness a dramatic transformation.
In line with the vision of the leadership to offer more attractions that add to the quality of life of residents and visitors to the holy cities of Makkah and Madinah, Seven will open new entertainment complexes.
Another addition is in Taif, the fifth biggest city in Saudi Arabia and the unofficial ‘summer capital’, where the cool climes draw people to its location on the slopes of the Sarawat Mountains.
Known as the spring by the sea for its popularity among tourists as a scuba-diving destination with white sandy shores, Yanbu is another strategic location. With easy connectivity from Riyadh and Dammam, Al-Kharj will also feature a Seven entertainment complex.
Another area which will feature a project by Seven will be Buraydah, located in the centre of Saudi Arabia, said the statement from Seven.
Abha and Khamis, set in the Asir Mountains and known for equitable all-year weather, will also have new entertainment complexes by Seven, adding to their touristic value.
The port city of Jazan by the Red Sea, serving as a large agricultural heartland of the kingdom, features several ambitious infrastructure projects and is another natural choice for Seven – along with Tabuk, one of the historic sites, rich in rock art, archeological sites, castles and mosques.
Adding to the entertainment ecosystem of the capital city of Riyadh is the development of the entertainment complex at Al Hamra that will serve the densely populated neighbourhoods in the north-east of Riyadh.
At the intersection of King Abdullah Road and East Ring Road, the project will serve over 2.5 million people within a radius of a 30-minute drive. Another exciting upcoming addition to Riyadh is the entertainment complex at Al Nahda, with the Nahda Park Metro Station just a few metres away. Announced last year, work on these projects is progressing as per schedule.
Further adding to the communities of Dammam and Al Khobar, which serve as vital hubs for several key industries and global businesses, Seven is bringing waterfront attractions that will create unforgettable moments of joyful entertainment for everyone. Announced last year, these projects will also offer a range of entertainment choices for residents and visitors.
“We are committed to realising the goals of Saudi Vision 2030 to accelerate the creation of world-class entertainment assets in the Kingdom that support economic diversification, create new jobs, and contribute to socio-economic progress. Our complexes will position the kingdom as an entertainment, culture and tourism hub of the region,” he stated.
“At Seven, we believe in promoting and creating opportunities for the private sector to thrive in the fast-evolving entertainment landscape of the kingdom,” noted Al Dawood.
“We are inviting the most ambitious and creative business partners and vendors to join us in our remarkable step forward to shape the entertainment landscape of the Kingdom,” he added.
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.”
GCC countries need to absorb growing young population into future labor market.
The International Monetary Fund’s (IMF) recent report noting that GCC states could see their financial wealth depleted in the next 15 years is an important call to action for the region, a senior officer at the Abu Dhabi state fund said.
“The quest for economic diversification and the bridge that hydrocarbon has given us is something that we’ll continue to be looking at and focus on for the next 20 to 40 years,” Waleed Al Mokarrab Al Muhairi, Deputy Group CEO, Mubadala, told delegates at the Milken Institute Summit held in Abu Dhabi.
On whether the 15 years’ time horizon for the Gulf states is too aggressive, Al Muhairi said: “Whatever the number is, it is an important call for action. Everybody in the GCC is thinking about diversifying, but not everybody is at the same level of diversification.”
While the UAE’s hydrocarbon wealth was transformed over the last 45 years into world-class infrastructure, great education, and good healthcare, Mubadala’s Al Muhairi said, this would still not be enough.
“If you want to maintain relevance as an economic hub and to ensure the best quality of life for your citizens and the people who live in one of the most open economies in the region, we need to keep growing. To keep growing, we need to ensure that the economy is innovation-led, to become a technology developer and exporter, and to continue to look for ways to address some of the big issues of the day,” he said.
“We have one of the youngest populations on Earth, and while we don’t necessarily have an employment problem today, it is really important that we think about how we absorb all those young people and make sure they have productive ways to contribute to the overall wellbeing of society,” he said.
A recent report by Fitch Solutions said that Arab Gulf countries are expected to advance labour force nationalisation policies, yet some countries of the bloc will go in for stricter policy implementation than others.
Countries like the UAE and Qatar that are relatively wealthier, have more fiscal flexibility and smaller youth populations are under less pressure to implement labour force nationalisation than other GCC countries such as Oman and Saudi Arabia. Read more here.
(Reporting by Nada Al Rifai, editing by Seban Scaria)
Qatar-based Industrial Solutions leader ‘Nehmeh’ has organised the annual Mega Industrial Expo 2020 showcasing a range of the world’s leading brands in construction solutions,
The two-day event was held on February 4 and 5 at a five-star hotel in Doha where Nehmeh showcased power tools, ventilation systems, light construction tools and machinery with a focus on concrete machinery along with demonstrations to let guests have a first-hand product experience of the machines and its applications.
An important part of the event was the launch of the Qatar’s first locally manufactured ‘Roof Top Package Unit’ by Nehmeh Air Conditioners and introduction of Belgium based ‘Beton Trowel’ brand renowned for Concrete & Compaction Equipment.
The event also featured key note address by experts from Beton Trowel, Nehmeh Air Conditioners and Makita over the two days. ‘Nehmeh App’ the region’s first industrial solutions mobile app was highlighted to guests at the expo. Nehmeh, one of the leading industrial solutions providers in the GCC, represents world class brands which are leaders in their respective categories.
For over 65 years, tens of thousands of people depend on reliable industrial performance solutions by Nehmeh. This mega event succeeded in attracting visitors including retail partners, suppliers, end-users and others related to the construction industry.
Visitors also included managers from Qatar looking for solutions to improve their efficiency and productivity on sites. Brands participating at the expo were Makita, Nehmeh Air Conditioners, Stampa, SDMO, Beton Trowel, Sofy, Portacool, Koshin, Awelco, Dr. Schulze among many more. Demonstrations were held on specially prepared areas showcasing tools, equipment and machinery. Expert professionals from Singapore, Germany and Belgium presented to the audience new introductions and technologies along with an informative Q & A session.
“Nehmeh range of Industrial Solutions cover major solutions required for the Qatari construction market. This concept event has been developed keeping in mind the requirements of our customers and I am glad to say that the event has been well received by the guests over the years,” said Emil A. Nehme, Chief Executive Officer at Nehmeh.
“With the support of our partners, we have the ability to cover major construction solutions as required here in Qatar. Witnessing the popularity of such an event, we are inclined to hold more such regular events as part of our calendar of activities,” he added.
‘The Nehmeh Corporate Catalogue 2020’ was launched during the event. Awards bestowed to various partners as tribute to their efforts and achievements. In addition, four lucky visitors also walked away with reward trips, gold coins and stay vouchers.
Recent oil market developments reveal a strong and sustained declining trend in the global oil demand, which is now expected to peak in 2040 or earlier. This outlook spells a significant fiscal sustainability challenge for the GCC region, says a new International Monetary Agency (IMF) report. The expected speed and size of the fiscal consolidation programmes in most GCC countries may not be sufficient to stabilise their wealth. These adjustments need to be accelerated and sustained over a long period of time, in line with the expected path of hydrocarbon revenue, says the study titled “The Future of Oil and Fiscal Sustainability in the GCC Region.” The oil market is undergoing fundamental change; new technologies are increasing the supply of oil from old and new sources, while rising concerns over the environment are seeing the world gradually moving away from oil. The combination of rising supply amid the global push to reduce reliance on fossil fuels is expected to continue, heralding what has been dubbed “the age of oil abundance”, the report says. This spells a significant challenge for oil-exporting countries, including those of the GCC who account for a fifth of the world’s oil production, says the report. The GCC countries have recognised the need to reduce their reliance on oil and are all implementing reforms to diversify their economies as well as fiscal and external revenues. Nevertheless, as global oil demand is expected to peak in the next two decades, the associated fiscal imperative could be both larger and more urgent than implied by the GCC countries’ existing plans. At the current fiscal stance, the region’s financial wealth could be depleted by 2034. Fiscal sustainability will require significant consolidation in the coming years. Its speed is an intergenerational choice. Fully preserving current wealth will require large upfront fiscal adjustments. More gradual efforts would ease the short-term adjustment burden but at the expense of resources available to future generations, it says. Anticipating and preparing for what comes next will be critical for oil-exporting regions. Oil remains critical to both external and fiscal revenues and overall GDP of the GCC states. A legacy of sharply rising fiscal expenditure during 2007–14 followed by a steep decline in hydrocarbon revenues have weakened fiscal positions in the GCC region. The decline in oil revenues sparked a period of intensive reforms, including sizable fiscal consolidations. Nevertheless, the effect of lower hydrocarbon revenue is yet to be fully offset. The resulting fiscal deficits have lowered the region’s net financial wealth during 2014–18, the report says. A path of prolonged deceleration in hydrocarbon revenue growth would add to this decline in wealth. At the current fiscal stance, the region’s existing financial wealth could be depleted in the next 15 years, warns the report. Although the importance of non-oil sectors has increased in recent decades, many of them still rely on oil-based demand either in the form of public spending of oil revenue or private expenditure of oil-derived wealth. The 2014–15 oil price shock, which notably slowed non-oil growth in most of the region, was a stark reminder of this dependence, it says. Recognising this challenge, the GCC countries are all implementing programmes to diversify their economies as well as fiscal and external revenues away from oil. The success of these programmes will be central to achieving strong and sustainable growth in the years to come, says the report.The report estimates that growth of global oil demand will significantly decelerate, and its level could peak in the next two decades. In assessing the long-term oil market prospects, it is useful to look beyond the geopolitical and cyclical factors and focus on trends that are robust to temporary shocks. Growth of global demand for natural gas is also expected to slow, although it is expected to remain positive in the coming decades. The fiscal policy need implied by this challenge is both larger and more urgent when compared to GCC countries’ existing plans. In the context of broader goals of sustainability and sharing of exhaustible oil wealth with future generations, all GCC countries have recognised the lasting nature of their challenge and are already planning continued fiscal adjustment in the context of their broader strategic long-term visions. Managing the long-term fiscal transition will require wide-ranging reforms and a difficult intergenerational choice. Continued economic diversification will be important but would not suffice on its own. Countries will also need to step up their efforts to raise non-oil fiscal revenue, reduce government expenditure, and prioritise financial saving when economic returns on additional public investment are low. While fiscal starting positions are still strong in a global context in four of the six GCC countries, the longer-term fiscal challenges are substantial, the report adds. –
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