Eastward shift in the MENA region
Crédito y Caución expects the Middle East and North Africa region to achieve economic growth of 3% by 2024 thanks to the expected normalisation of the oil market in the $80-85 a barrel range. The credit insurer's latest report highlights the region's business potential, which will be among the highest in the world by 2024. According to its estimates, its export growth will be close to 4%.
The countries that make up the Gulf Cooperation Council (Saudi Arabia, United Arab Emirates, Bahrain, Oman, Kuwait and Qatar) are focusing their trade strategies on strengthening ties with the fast-growing economies of Asia and Africa, while diversifying trade in hydrocarbons. Exports and imports to and from advanced economies have gone from accounting for half of their trade to only one third over the past 15 years. With the exception of increased sales of liquefied natural gas to Europe, Western countries are increasingly disconnected from the region as part of this gradual reorientation of their trade.
India and China are the Gulf Cooperation Council's main partners in Asia and are responsible for this strategic shift. Unlike the advanced economies, where demand for fossil fuels will soon peak, Asian demand is expected to remain strong. Foodstuffs, manufactured goods and machinery are imported from Asia, which is increasingly being traded in the opposite direction, as Middle Eastern countries are developing their production capacity in these areas.
The greening of the economy is another driver of increased trade with fast-growing markets, not only with Asia but also with Africa. Imports of critical metals such as copper, which can be used to build renewable energy technologies, are on the rise. African countries also benefit from using the regional trading hubs of the Middle East and North Africa to trade their raw material exports. China has become a major supplier of energy transition-related technologies, such as solar panels, and an important source of expertise in this field.
The region's energy-importing countries (Morocco, Jordan, Lebanon, Tunisia and Egypt) are also increasingly dependent on Asia for their imports, but the dominance of Europe as an export partner remains undisputed, especially for Tunisia and Morocco. In that sense, the low growth prospects of the advanced economies are currently a drawback for their own growth.
Despite its good trade prospects, the region has significant macroeconomic imbalances. The most serious sovereign risks in the region are in Egypt, Tunisia and Lebanon, whose unresolved balance of payments problems have affected the availability of foreign exchange. In a context of low economic growth rates, high inflation and high levels of public debt, they do not have the liquidity to absorb further external shocks.
With oil prices at around $80-85 per barrel, Algeria and Bahrain will run substantial budget deficits, as their fiscal breakeven prices are well above $100 per barrel. Climate risks are also relevant for the relatively large agricultural sectors in Morocco and Tunisia. For the region as a whole, possible oil price swings pose the main downside risk to their growth forecasts.