Economic progress in the MENA region is highly dependent on the overall political climate and Eurozone financial stability. Sherine Abdel-Razek
leafs through the World Bank's Global Economic Prospects report
Coming out in June, coinciding with the escalation of violence in Syria, controversial Egyptian presidential elections, Libya electing its first post-revolution parliament, and Yemen in turmoil, the World Bank's Global Economic Prospects report says that any delay in easing political tensions could significantly slow growth in several countries.
Moreover, the close economic and trade ties of countries of the region and the Eurozone -- some 70-80 per cent of goods exports from Morocco and Tunisia, for example, are destined for the Eurozone -- has left the region particularly sensitive to the deepening Euro crisis. "The likelihood of crisis involving Greece and potential serious spillovers through banking systems, remains a palpable threat," noted the report.
Assuming a degree of stabilisation in the political situation in the region during 2012, growth is projected at 0.6 per cent for the year, largely as sanctions take hold on growth in Iran, and GDP continues to decline in Syria and Yemen. Aggregate GDP for the region grew by only one per cent in 2011, in contrast with 3.8 per cent in 2010.
The spillover effect of problems in politically distressed countries adds to the gloominess of the picture. The impact of the situation in Syria is beginning to look serious as Lebanon's service-based economy feels its effects and Jordan is about to resort to the IMF to finance its needs.
Meanwhile, improvement for Greece and the European Monetary Union in the second half of 2012 would increase demand on regional exports and thus support growth.
However, the fact that many of the diversified economies of the region are running large trade deficits, ranging from $28 billion in Egypt (13 per cent of GDP) to $6 billion in Tunisia (16 per cent of GDP) hinder prospects of recovery.
Other sources of hope for a better economic situation for the rest of the year lie in tangible improvements in industrial production. In Egypt, following a three per cent decline in crude oil production in the last quarter of 2011, oil output has been growing during the first five months of 2012, gaining 2.6 per cent in the first quarter (year-over-year). Electricity production (a good proxy for commercial and industrial activity) is up 12.5 per cent over the same period.
Moreover, worker remittance flows continue to remain strong during 2012 as overseas workers increase efforts to provide support for families in home countries. With gradual recovery in Europe, and with fresh hydrocarbon windfalls among Gulf Cooperation Council (GCC) countries, it is hoped that this important income flow can be re-established in the next quarters and years to help finance current account deficits while contributing to offset a portion of fiscal deterioration, notes the World Bank report.
The gradual improvement in the international environment anticipated over 2012-14 will be helpful in stabilising the region's external receipts and to a degree, domestic finances also.
Growth for the region is expected to firm to a still moderate 2.2 per cent in 2013, picking up to 3.4 per cent by 2014.
For oil importing countries, recovery in the European market during the second half of 2012 should prompt a revival of goods exports and to a degree, worker remittances and tourism.
Slower recovery is expected for oil importers with growth expected to reach 4.7 per cent by 2014. However, Egypt may experience more domestic headwinds than Tunisia and other regional countries.
Egypt's economy is projected to move out of negative territory to 1.4 per cent growth in 2012, rising by 4.6 per cent in 2014 despite the growing current account and fiscal deficits.
Should these difficulties become acute, the country could be forced to cut radically into government spending and/or imports, and potentially seek assistance from the international community.
With the exception of Iran, developing oil exporters are expected to benefit from the anticipated high price of crude oil (to average $107 per barrel in 2012), allowing continued spending on domestic infrastructure and social projects. Growth in Algeria is projected to firm to 2.6 per cent this year, rising to 3.6 per cent in 2014, while in Iran it is anticipated to decelerate by 0.8 per cent in 2012 and 2013 before rising to 1.5 per cent by 2014.
Countries with closer ties to the GCC, including Jordan and Lebanon, may see financial assistance appear more rapidly and readily, as oil windfalls propel financial flows from high-income countries of the region. The GCC group is anticipated to grow by 4.8 per cent during 2012, grounded in higher oil prices and increased oil production and exports. An easing of growth towards 3.7 per cent by 2014 appears likely as production is scaled back, oil prices soften moderately and large-ticket projects come to fruition.
Economic recovery and favourable outturns for countries undergoing political and regulatory reforms increase the possibilities that foreign direct investment could return to a range of $23 billion by 2014 -- about the magnitude of the halcyon days of the mid-2000s.
There have been several recent announcements of interest on the part of GCC members to recommence investing in the diversified economies of the region. For example, the UAE would invest up to $3 billion in four Egyptian agricultural projects; and there is Qatari interest in collaborating with Tunisia to build the first private oil refinery in the country.
Concluding its analysis on the region, the World Bank report underlined that exceptionally serious deterioration of conditions in the Eurozone, and in turn in the global economy, could imply GDP losses for the region of 3.0 to 4.4 per cent over 2012 to 2013 respectively. "Key channels of transmission would include trade, tourism, remittances, financial flows, and importantly a fall-off in local business and consumer confidence, potentially sustaining the downturn for a more extended period."