30 May 2018

The Economic Outlook for the Middle East and North Africa

It is clear that, as a region. the Middle East and North Africa, has suffered from a number of calamities of late.  While the range of conflicts that currently beset the region dominates the headlines, it is the region’s economic struggles that might cause the most harm to the region over the longer-term.  These economic struggles are the result of a number of factors that have hindered economic growth and development in recent years.  First and foremost, the conflicts that are underway in a number of Middle Eastern and North African countries have devastated the economies of those countries, many of which are among the poorest in the region.  Since 2014, lower oil prices have also contributed to the region’s woes, bringing growth to a standstill in many of its wealthiest countries and forcing governments across the region to enact strict austerity measures.  In addition, regional competition has intensified, leading trade and investment ties between many countries within the region to be severely reduced.  As a result of these struggles, overall economic growth rates in the Middle East and North Africa have averaged less than 3% over the past five years, a very low rate when one considers the rapid growth of the region’s overall population.  Should this region’s economic struggles persist, there will be major repercussions for the security and stability of the region, and for the world.

For many countries in the Middle East and North Africa, the oil and gas industry is the source of much of their economic output.  In fact, oil-and-gas-producing countries account for 62% of the region’s total GDP and nearly all of the region’s wealthiest countries achieved this status via the oil and gas industry.  Since 2014, these countries have suffered as a result of the dramatic decline in oil revenues that followed the sharp fall in oil prices that year.  This forced these oil-and-gas-dependent countries to make major readjustments to lessen their dependency upon this industry and to make large-scale public spending cuts as government revenues plummeted.  This has been reflected in the relatively low economic growth rates that these countries have recorded in recent years, with growth rates continuing to trend downwards over the past year.  In fact, major oil-producing countries such as Saudi Arabia, Kuwait and Iraq all saw their economies shrink last year as the combination of lower oil revenues and reduced government spending curtailed growth.  For these countries, the past few years have been a reminder that they remain dependent upon a single industry for much of their economic growth.  This has led to oil-producing countries reiterating their intentions to diversify their economies, although, so far, this has had very limited results.  As these economies struggle, they will find it increasingly hard to generate wealth or create jobs for their fast-growing populations, something that could lead to higher levels of instability and unrest in the years ahead.

While the problems confronting oil-producing countries have, so far, largely been economic, the non-oil-producing economies of the Middle East and North Africa have faced a much wider range of challenges.  For example, many of the region’s ongoing conflicts and instability have been found in countries without major oil industries.  These countries were already among the poorest in the region and this recent instability has severely damaged many of their economies.  Of the countries in the region that lack major oil and gas reserves, the most successful have been those that have diversified economies that produce goods or services that can be exported outside of the region.  For example, Turkey has recorded some of the region’s highest rates of growth in recent years, while Israel has the region’s most high-tech economy.  At the same time, some of the region’s poorer non-oil-producing economies have managed to enact sensible economic policies that have helped them to record higher economic growth rates when political stability takes hold.  A good example of this is Egypt, were the country’s economic outlook has improved, despite all of the political turmoil of recent years.  Nevertheless, nearly all of these countries have populations that are soaring, meaning that, without even higher rates of economic growth, wealth- and job-creation levels will be insufficient to meet the demands of these countries’ populations.

Quite simply, the economies of the Middle East and North Africa must do better.  The dramatically-increasing working-age populations of this region will prove to be both a blessing and a curse, as this will increase economic growth opportunities in the region, but will also stretch the region’s resources ever-more thinly, while increasing the need for higher levels of job creation.  A few countries have set a good example of how the region can improve its economic outlook.  Turkey, despite its current worries, has recorded high levels of economic growth in recent decades, thanks to its ability to diversify its economic and gain access to export markets outside of the region.  Likewise, Israel has invested heavily in high-tech industries and services, enabling it to overcome its isolation within the region and to succeed in some of the world’s fastest-growing sectors of the economy.  Dubai has also done something similar, becoming the region’s leading center for many fast-growing industries and services.  Each of these economies has shown that, in order to succeed in the 21st century, the countries of the Middle East and North Africa will have to attract higher levels of investment and diversify their economies.  If the region is unable to achieve higher levels of growth in the years ahead, many more challenges will arise that will threaten to unleash higher levels of instability across the region.  Worse, this unrest could spread outside of the region, impacting areas much further abroad.  In fact, the economic well-being of the Middle East and North Africa is likely to be one of the leading factors in determining the level of global stability in the years to come.