Consumers in MENA countries are positive about regional economies in the second half of 2007, Sherine Abdel-Razek
scans the reasons
An increase in oil prices, a buoyant influx of FDIs, geared growth rates and an increased role by the private sector contributed to a rosy outlook for the Middle East North Africa (MENA) region in the coming six months. This positive sentiment was reflected in the figures of the MasterIndex, a survey conducted by Mastercard to measure consumer confidence in selected markets in South Asia, the Middle East and Africa (SAMEA).
The survey analyses consumer perceptions of economic conditions for the coming six months, rating countries on a 0 to 100 scale. A score above 50 indicates that consumers are optimistic about the economic climate, while a score below 50 signals that they are pessimistic about what is to come. The countries surveyed are Egypt, Kuwait, Lebanon, Saudi Arabia, UAE, South Africa and India, and scores are based on respondents' answers to questions related to five key economic barometers. These are employment, economy, regular income, stock market and quality of life.
According to the survey conducted in April, overall confidence across the Middle East and Levant stayed nearly at the same level of 83.6 points, in comparison to 83.9 points in the survey conducted six months earlier. Meanwhile, Egypt ranked first in overall consumer confidence, after climbing up from fourth position in the previous survey. Consumer confidence in Egypt is at a record high with 94.3 points, registering a sharp increase from 78.2 points six months earlier.
Saudi Arabia came second, with a MasterIndex score of 92.0 points -- which is a drop from 97.3 points in the second half of 2006. Lebanon came last with 38.6 points, a sharp decrease from 67.6 points in the second half of 2006. It is expected to retreat further due to political unrest there.
Bi-annual MasterIndex surveys have been taken across SAMEA since 2004, and in Asia Pacific countries for the last 15 years. The survey was designed to gauge the perceptions of people who have the experience and means of engaging in a wide spectrum of activities which dictate the performance of the national economy. Thus, respondents were amongst the 'banked' population (ie those who have at least a savings account, a home/auto loan, or own plastic payment or ATM cards), and are between the ages of 18-64.
In a presentation to explain the main reasons behind the positive outlook, Nasser Saidi, chief economist at the Dubai International Finance Center (DIFC), pointed out that MENA has seen an average real GDP growth of 6.5 per cent over 2003-2006, versus 3.7 per cent in 1998-2002. This is coupled with favourable global developments, such as high growth, low inflation and reduced interest rates. Fortunately, this growth resurgence was investment led with increased infrastructure investment by governments, accompanied by complementary private sector investment. Infrastructure investments, with an estimated value in excess of $1.1 trillion, are currently under development or planned in the GCC, India and Iran.
Another factor is the positive demographic structure of the region's population, with a majority at working age, rising migration to oil producing countries, sustained labour and output growth. Higher growth in oil producing countries has been transmitted to labour exporting countries of the SAMEA region (mainly to Egypt, India and Lebanon) through remittances. According to Saidi, officially recorded remittances worldwide have risen from an estimated $73 billion in 1999, to more than $232 billion in 2005 ($21.3 billion for MENA).
Meanwhile, recent years have witnessed a shift in the labour relation with these economies. Saidi believes that high-skilled and professional migration towards oil producing countries of the GCC is more likely to be permanent, compared to what happened during previous oil-induced booms in the 1970s and early 1980s. One of the reasons for this shift could be economic reforms in these countries regarding the property market, commercial laws and regulations facilitating ownership of assets. This has attracted capital and increased retention of migrants' savings.
Also, the more obvious involvement of the private sector in trade, services, tourism and FDIs has given companies a bigger chance to grow, with regional companies becoming multinationals. A few examples include the UAE's giant companies Emaar for real state and Etisalat for telecommunication; Egypt's Orascom group of companies; and Kuwait's MTC.
Saidi also noted the predicted resilience of the region in the face of future impediments. A global slowdown induced by slower growth in the US is likely to have less of an effect than in previous business cycles. This is because the world's economic geography has changed, with its epicenter moving towards Asia. According to the chief economist, even a decline in oil prices is not likely to have a substantial impact on investment spending or on government budget surpluses, as long as oil prices remain above $38 to $40 per barrel.
However, the resilience of their economies should not lead MENA countries to become complacent, cautioned Saidi. They need to undertake more reform policies, especially in the banking and financial sector, as well as modernise laws and regulations relating to market access to reflect the greater openness of their economies.