As the deadline looms, countries struggle to agree on protecting nature, Gloria Dickie and Duncan Miriri did not specifically tell if any of the countries of the MENA is amongst them. Our opinion and to perhaps substantiate the authors’ points by proposing that these are undeniably no different than those quoted.
A dynamic private sector is key for the economies of the region to grow out of their currently high debt levels; Unlocking sustainable growth in the region’s private sector requires reforms that facilitate innovation, the adoption of digital technologies and investments in human capital; Reforms to support these objectives must take account of sustainability and the global agenda to limit climate change
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The European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and the World Bank have published a joint report, Unlocking Sustainable Private Sector Growth in the Middle East and North Africa (MENA) (https://bit.ly/3H73CdA). The report analyses constraints on productivity growth and limited accumulation of factors or production in the MENA private sector.
The report is based on the MENA Enterprise Survey conducted between late 2018 and 2020 on over 5 800 formal businesses across Egypt, Jordan, Lebanon, Morocco, Tunisia, the West Bank and Gaza. Historically, economic growth in the Middle East and North Africa has been weak since the global financial crisis of 2007-2009 and the Arab Spring of the early 2010s. Since then, gross domestic product (GDP) per capita has grown by only 0.3% a year in the MENA region. That compares unfavourably with rates of 1.7% on average in middle-income countries and 2.4% in the developing economies of Europe and Central Asia.
Achieving higher and sustainable growth is particularly important in view of other economic challenges facing the region. Public debt has increased considerably over the last decade, accompanied by declining investment. More recently, the coronavirus pandemic has battered the region, further straining public finances. In addition, the Russian invasion of Ukraine affects the MENA economies through higher hydrocarbon prices, risks to food security and declining tourism.
Against this background, it is important that policymakers exploit the potential of the private sector to propel the region towards greater prosperity.
“The spillovers from the war in Ukraine add to structural vulnerabilities in the region. The prospects for global financial tightening, persistently high energy and food prices and concerns for food security come on top of concerns related to weak economic growth and rising debt levels,” said EIB Chief Economist Debora Revoltella (https://bit.ly/2UYJi4s). “When responding to the new shock, MENA countries need to tackle the main structural bottlenecks affecting the region. Reforms that lower regulatory barriers, tackle informal business practices, promote competition, and facilitate innovation and digitalisation are crucial for achieving sustainable economic growth and improving resilience to future shocks.”
The business environment in the MENA region as reported in the survey has been held back by various factors. Political connection and informality are undermining fair competition, bringing economic benefits to a limited number of companies. Management practices lag behind benchmark countries, with a decline in average scores in all MENA countries since 2013.
Customs and trade regulations appear to be more severe barriers for firms in the MENA region than in other countries. Firms need more time to clear customs to import or export than in other countries. The MENA economies depend on high levels of imports compared to low export activities.
Although firms trading in the international market are more willing to develop and innovate processes, only 20% invest in innovation, which can affect the long-term economic prospects for the region.
The region needs to make better use of its human capital. Predominantly, only a few foreign-owned companies invest in training their human capital, and they tend to be digitally connected exporting firms. Additionally, a significant share of companies are not engaging in financial activities with other economic players, opting to self-finance voluntarily.
Incentives for companies to decarbonise are weak, and MENA firms are less likely than their counterparts in Europe and Central Asia to adopt measures that reduce their environmental footprint.
Unlocking sustainable growth in the region’s private sector, the report calls for MENA economies to lower regulatory barriers for businesses, promote competition and reduce disincentives emerging from political influence and informal business practices.
The region is also in need of reforms to facilitate innovation, the adoption of digital technologies and investments in human capital, while being in line with the global agenda to limit climate change, enhance sustainability and protect the natural environment.
Improving management practices can be instrumental to that. “Good management practices can account for as much as 30% of differences in efficiency across countries,” said Roberta Gatti, Chief Economist for the Middle East and North Africa at the World Bank. “Management practices are lacklustre in firms in the region, particularly in those with some state ownership. Improving these practices can have substantial benefits, is not costly, but is not easy. It will require — among others — a change in mindsets.”
Companies should also be given incentives to exploit the benefits of participating in cross-border trade and global value chains more broadly, accompanied by better management practices.
At the same time, the state has a duty to ensure that this transition process is just, through measures that help workers to take advantage of opportunities to obtain new, higher-quality jobs linked to the green economy, while also protecting those at risk of losing their jobs. Such measures include labour market policies, skills training, social safety nets and action to support regional economic development.
EBRD Chief Economist Beata Javorcik said: “Climate change creates an opportunity the MENA region to build up its green credentials and use them as a source of competitive advantage. This will create the much-needed high-quality jobs linked to the green economy.”
Distributed by APO Group on behalf of European Investment Bank (EIB).
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The Middle East has always been considered an energy exporter to Asean, but this relationship has become more nuanced in recent years, especially as the former has shifted its focus to boosting non-oil exports.
Notably, countries such as Indonesia and Singapore have benefited.
Late last year, the Indonesian government announced they had secured US$32.7 billion worth of investment commitments from United Arab Emirates (UAE) businesses in various sectors, such as vaccine manufacturing and distribution.
“Indonesia is a very typical case of how I think Asean is becoming a magnet for foreign direct investment (FDI) from the Gulf countries,” said Gyorgy Busztin, a visiting research professor at the Middle East Institute, National University of Singapore.
Dr Busztin cited Asean’s political stability (outside of Myanmar) as well as a general lack of labour unrest as key factors that draw these Gulf countries to the region, even as he qualified that these countries have to be looked on a case-by-case basis.
“Compatibility, stability, and predictability, which are, of course, combined with the presence of a large, young, and highly trained workforce – it all comes together very nicely.”
Singapore too has benefited from the relationship.
A spokesperson from the Singapore Business Council, Qatar, noted that with Qatar is diversifying its economy away from oil and gas as part of its National Vision 2030, some of the key sectors they are looking at include sustainability and technology.
These are sectors in which Singapore has strong capabilities, he said.
“This makes businesses that wish to expand outside of the Middle East region look to Singapore as one of the key destinations to explore opportunities and use it as a base to springboard into the wider region due to its strategic location and easy access from the Middle East,” he said.
Alessandro Arduino, principal research fellow at the Middle East Institute at the National University of Singapore, added: “Expertise from Singapore will be beneficial to development in the Gulf and at the same time, can increase profitable cooperation between the Gulf and South-east Asia in areas ranging from artificial intelligence to Internet of Things, and smart cities.”
Leveraging Asean’s strengths
Economic ties between the Middle East and Asean have strengthened significantly since the first Asean-GCC Joint Vision was adopted in 2009.
In 2019, the two blocs further agreed to finalise the Asean-GCC Framework of Cooperation for 2020-2024 to advance collaboration in multiple sectors including smart cities, energy, connectivity, agriculture and halal products. Bilateral partnerships between individual countries have also risen.
The Singapore-UAE Comprehensive Partnership (2019) and the Malaysian Investment Development Authority’s (MIDA) MoU with the Investment Promotion Agency of Qatar (2019) are notable examples.
Heidi Toribio, Regional Co-head, Client Coverage, Asia, Corporate, Commercial and Institutional Banking at Standard Chartered
Heidi Toribio, regional co-head, client coverage, Asia, corporate, commercial and institutional banking at Standard Chartered, said: “As countries across the Middle East diversify into new non-oil sectors, Asean is emerging as an important trade and investment destination.”
In 2020, investments from the Middle East into Asean reached US$700 million, a three-fold growth from 2017. In the first three quarters in 2021 alone, merchandise imports to Asean from the Middle East grew more than 30 percent year-on-year, reaching US$52 billion in value, she noted.
According to a survey of Middle Eastern companies commissioned by Standard Chartered and prepared by PricewaterhouseCoopers, 82 per cent of Middle East respondents expect more than 10 per cent growth in their Asean business revenues this year.
They identified access to the large and growing Asean consumer market (60 per cent); access to a global market (from Asean) enabled by a network of Free Trade Agreements (58 per cent); and diversification of production footprint (51 per cent) as key reasons why they are interested in the region.
The Regional Comprehensive Economic Partnership (RCEP) is also expected to attract more investments; all of the respondents agreed that the ratification of the agreement will lead to more investments from their company. Close to 70 per cent said they expect their company to increase investments by more than 50 per cent over the next 3-5 years.
In terms of geographical preference, respondents chose Malaysia (78 per cent), followed by Singapore (69 per cent) and Indonesia (67 per cent).
Of those who picked Singapore, 94 per cent of the senior executives from the 45 companies based in the Middle East said they consider the city-state a major regional R&D/innovation centre.
A further 87 per cent said Singapore is a desirable hub for regional procurement and that Singapore is an ideal place to set up their regional sales and marketing headquarters.
Finding new growth opportunities
The report identified 5 growth sectors which it expects to drive the future of the Middle East-Asean corridor. They are namely refining and petrochemicals; infrastructure and real estate; renewable energy; retail and consumer goods; and digital infrastructure and services.
Perhaps unsurprisingly, consumption of fuels and petrochemicals continues to grow strongly in Asean, driven by rising consumer and industrial demand. To address energy security concerns, the region is also now focusing on boosting local production capacity by building integrated refining and petrochemical facilities.
Similarly, rapid economic and social progress have accentuated Asean’s infrastructure needs.
“The infrastructure segment will continue to dominate the construction industry, maintaining a 46 per cent share in sector GVA (gross value added) by 2025, followed by commercial real estate (32 per cent) and residential real estate (22 per cent),” said the report.
“In particular, demand for healthcare and transport infrastructure as well as logistics and industrial real estate are expected to drive growth, which is creating new investment and business opportunities for Middle East companies.”
Separately, demand for digital solutions and enabling digital infrastructure is expected to see significant growth. Indeed, the region’s flourishing digital start-ups are increasingly attracting capital from leading investment firms globally, including many from the Middle East.
In terms of more nascent sectors, Asean nations are increasingly prioritising solar and wind solutions to meet their future energy requirements. Retail and consumer goods sector in Asean is also expected to regain momentum in the years ahead, led by an expected surge in consumer spending.
Lebanese voters are signalling a desire for change as generally witnessed and felt by all after the country’s latest parliamentary elections.
By John Nagle, Queen’s University Belfast and Tamirace Fakhoury, Aalborg University
Lebanese voters are signalling a desire for change, with Hezbollah and its allies losing ground across the country in a parliamentary election.
Just as the recent election in Northern Ireland brought a boost for the non-sectarian Alliance Party, Lebanon’s election saw significant gains for political representatives untethered to sectarian politics. Like Northern Ireland, Lebanon’s political system is set up to share power. Its new parliament will have various sectarian blocs, revolving around Hezbollah and rival party Lebanese Forces, and a sizeable non-sectarian group campaigning on economic issues, social justice and accountability.
Hezbollah, a pro-Iranian Shia-based party, emerged in 1982 largely in response to Israel’s invasion of Lebanon. It gained prominence after the end of Lebanon’s civil war (1975-1990) and its share of parliament seats started rising in the 2000 elections. After the departure of Syrian troops from Lebanon in 2005, its alliance with key political players such as the other Shia-based political party, Amal, and the Christian-based Free Patriotic Movement allowed it to gradually block major policy processes deemed detrimental to its interests such as negotiations on its demilitarisation.
The Hezbollah bloc has lost ground to rivals across the spectrum. Results indicate that the pro-Thawra opposition candidates have made significant gains, capturing up to 13 seats. The Thawra name harks back to October 2019, as the state’s economy went into freefall, when an uprising of ordinary citizens, often called the Thawra, campaigned for all sectarian leaders to resign and for rights for foreign domestic workers, women and LGBTQ+ people.
In this election, the Lebanese Forces party has used widespread anger against Hezbollah and its allies to increase its number of parliamentarians. Lebanese Forces has positioned itself as the main faction willing to contest Hezbollah in the power-sharing government.
Opposition gains have been secured even in areas traditionally seen as Hezbollah strongholds. In 2018, Hezbollah and its allies won 71 seats, making it the biggest faction in the parliament. Hezbollah emerged from Sunday’s election weakened as many voters blame the party for hindering an independent investigation into the Beirut port explosion which killed more than 200 people.
This national election took place as Lebanon struggled with a series of crises beginning in 2019, including an economic meltdown that left more than 75% of the population below the poverty line, in what the World Bank ranks as among the three most severe economic collapses anywhere since the 19th century. The country is also dealing with the aftermath of the port disaster. More recently Russia’s invasion of Ukraine has pushed millions close to starvation because of Lebanon’s heavy dependence on Ukrainian wheat.
Relatives of victims of the August 2020 Beirut port blast carry their pictures during a protest near the port. Reuters/Alamy
Lebanon’s political power-sharing system is deliberately designed to protect the entrenched interests of the state’s powerful sectarian leaders. All seats in the 128-member parliament are reserved on a sectarian basis and the powerful factions have often functioned on behalf of other powers, such as Iran and Saudi Arabia.
For its supporters, the power-sharing system gives guarantees of political representation to the main groups and ensures that no faction can control the government.
Critics point to a number of drawbacks with the system. Some Lebanese people are reliant on their sect leaders to distribute basic services, such as healthcare. Lebanon is further crippled by paralysis and dysfunction, with the government rarely passing any new laws.
Yet, despite many barriers to change, we may be beginning to see cracks in the system to allow anti-sectarian and independent opposition candidates to emerge as a serious force in Lebanon.
In recent years, hundreds of thousands of Lebanese have voiced dissent by taking to the streets to demand an end to the state’s corrupt leaders, branded by protesters as “thieves”.
While the protests eventually ran out of steam, it built a platform for a political movement that has now gained independent parliamentary seats.
While it is tempting to suggest that Lebanon’s election has ushered in significant change, caveats are required. Voter turnout was 41%, lower than in 2018. This may point more to apathy and disillusionment than hope.
Obsolete electoral laws have not kept pace with people’s lives, and may have been a factor in the low turnout. In Lebanon, people must vote in the constituencies where they were born. With fuel prices rising and a crumbling transportation system, many could not travel to their birthplace hours away.
This result could lead to political stalemate and confrontational power-sharing. The parliament could turn into a polarised arena where parties with opposing agendas are supposed to share power. The main factions are likely to disagree on the new speaker of parliament and on the allocation of executive ministerial positions, making it difficult for the council of ministers to address the disastrous economic situation.
Factions are also likely to disagree on the new presidential candidate set to replace current president Michel Aoun five months from now at the end of his term.
Yet there is still room for optimism. The success of these independent candidates demonstrates that anti-sectarian politics can succeed in an environment designed to prohibit it flourishing. Unlikely breakthroughs in sectarian strongholds represent notable and exceptional gains.
Independent candidates have not had the array of tools at the disposal of the major sectarian parties. They do not have the economic clout to court votes or have links to powerful media networks to echo their message. They also can’t ask for support from powerful states, such as Iran and Saudi Arabia. Their candidates are more likely to be harangued and attacked by sectarian factions.
Nevertheless, their victory in Lebanon’s elections has powerful implications. It is one of the key achievements of the 2019 Thawra movement, a landmark episode that many had dismissed for not having achieved very much.
John Nagle, Professor in Sociology, Queen’s University Belfast and Tamirace Fakhoury, Associate Professor of Political Science, Aalborg University
Read the original article.
By Amjad Ahmad in Atlantic Council
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:
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.
Twitter: @AmjadAhmadVC.
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