Category: MENA

WEF global competitiveness rankings, 2013-2014

According to the World Economic Forum Qatar reaffirms once again its position as the most competitive economy in the region (13th globally) for the period 2013-2014. The country’s strong performance in terms of competitiveness rests on solid foundations made up of a high-quality institutional framework (4th), a stable macroeconomic environment (6th), and an efficient goods market (3rd). Low levels of corruption and undue influence on government decisions, high efficiency of government institutions, and strong security are the cornerstones of the country’s solid institutional framework, which provides a good basis for heightening efficiency.

Going forward, reducing the country’s vulnerability to commodity price fluctuations will require diversification into other sectors of the economy and reinforcing some areas of competitiveness. As a high-income economy, Qatar will have to continue to pay significant attention to developing into a knowledge- and innovation-driven economy. The country’s patenting activity remains low by international standards, at 60th, although some elements that could contribute to fostering innovation are in place. The government drives innovation by procuring high-technology products, universities collaborate with the private sector, and scientists and engineers are readily available. To become a truly innovative economy, Qatar will have to continue to promote a greater use of the latest technologies (31st), ensure universal primary education, and foster more openness to foreign competition—currently ranked at 30th, a ranking that reflects barriers to international trade and investment and red tape when starting a business.

The United Arab Emirates moves up in the WEF global competitiveness rankings to take second place in the MENA region at 19th globally. Higher oil prices have buoyed the budget surplus and allowed the country to reduce public debt and raise the savings rate. The country has also been aggressive at adopting technologies and in particular using ICTs, which contributes to enhancing the country’s productivity. Overall, the country’s competitiveness reflects the high quality of its infrastructure, where it ranks a solid 5th, as well as its highly efficient goods markets (4th). Strong macroeconomic stability (7th) and some positive aspects of the country’s institutions—such as strong public trust in politicians (3rd) and high government efficiency (9th)—round up the list of competitive advantages.

Going forward, putting the country on a more stable development path will require further investment to boost health and educational outcomes (49th on the health and primary education pillar). Raising the bar with respect to education will require not only measures to improve the quality of teaching and the relevance of curricula, but also measures to provide incentives for the population to attend schools at the primary and secondary levels.

Saudi Arabia remains rather stable with a small drop of two places to 20th position overall. The country has seen a number of improvements to its competitiveness in recent years that have resulted in more efficient markets and sophisticated businesses. High macroeconomic stability (4th) and strong, albeit falling, use of ICTs for productivity improvements contribute to maintaining Saudi Arabia’s strong position in the GCI. As much as the recent developments are commendable, the country faces important challenges going forward. Health and education do not meet the standards of other countries at similar income levels. Although some progress is visible in health and primary education, improvements are being made from a low level. As a result, the country continues to occupy low ranks in the health and primary education pillar (53rd). Room for improvement also remains on the higher education and training pillar (48th), where the assessment has weakened over the past year. Labor market efficiency also declines, to a low 70th position, in this edition. Reform in this area will be of great significance to Saudi Arabia given the growing number of young people who will enter the labor market over the next several years. More efficient use of talent—in particular, enabling the increasing share of educated women to work—and better education outcomes will increase in importance as global talent shortages loom on the horizon and the country attempts to diversify its economy, which will require a more skilled and educated workforce. Last but not least, although some progress has been recorded recently, the use of the latest technologies can be enhanced further (41st), especially as this is an area where Saudi Arabia continues to trail other Gulf economies.

WEF GCI Info Slides 1 v1

The Middle East and North Africa
The Middle East and North African region continues to be affected by political turbulence that has impacted individual countries’ competitiveness. Economies that are significantly affected by unrest and political transformation within their own borders or those of neighboring countries tend to drop or stagnate in terms of national competitiveness. At the same time, some small, energy-rich economies in the region perform well in the rankings. This underlines the fact that, contrary to the situation found in previous energy price booms, these countries have managed to contain the effects of rising energy prices on their economies and have used the window of opportunity to embark on structural reforms and invest in competitiveness-enhancing measures.

Mineral resource abundance: Blessing or curse?
The availability of abundant natural resources, especially minerals such as oil, gas, copper, and gold, has traditionally been regarded as an important input into economic growth and higher levels of prosperity in many economies. Many oil- and gas-rich countries in the Middle East have benefited from some of the highest gross domestic product per capita in the world, for example.

However, an abundance of mineral resources does not necessarily directly equate with higher rates of sustained productivity and overall competitiveness, and thus with rising prosperity in the long term. From the 17th century, when a resource-poor Netherlands managed to flourish in sharp contrast to gold- and silver-abundant Spain, to more recent cases—such as the rapid economic development of mineral-poor newly industrialized countries of Southeast Asia, which stand in contrast to some oil-rich nations such as Venezuela—history is full of examples where mineral endowments have not proved to be a blessing for long-term economic growth. Instead, such endowments have been a curse that has held countries back from making investments to support future, long-term economic development.

In the end, the relationship between mineral abundance and levels of prosperity depends on the use that nations make of the revenues accruing from mineral exports. Those countries that use such revenues for current spending rather than on productive investments will most likely not benefit from high growth rates in the long run. In those countries, national investments are driven toward mineral extraction activities that affect the level of productivity of other activities, such as manufacturing and services. This leads to an increase in the country’s exposure to fluctuations of mineral prices in international markets. In order to avoid these negative effects, known in the academic literature as the “Dutch disease,” countries should invest their mineral revenues carefully in productive activities such as infrastructure, education, and innovation. By doing so, they will enhance their overall productivity and support a progressive diversification of their economies, becoming more resilient and ensuring more sustainable patterns of economic growth.

One crucial factor that allows countries to effectively channel mineral revenues toward productive investments is the presence of strong, transparent, and efficient institutions. The absence of corruption, along with high levels of transparency and accountability and a strong commitment to a long-term economic agenda that is based on steady productivity gains and independent from the political cycle, are necessary, if not always sufficient, conditions to ensure that natural resources support long-term growth. Chile, Norway, and the United Arab Emirates are examples of countries that are managing their mineral revenues smartly. These countries are creating national funds that avoid overheating their economies and that invest in growth enhancing activities related to education and innovation, thus supporting more diversification and preparing the ground for longer-lasting and more sustainable economic growth.

MENA: key economic issues in 2014

sources--erutledge--economist-intelegence-unit

Economist Intelligence Unit | Middle East and North Africa: key economic issues in 2014

Since the onset of the Arab Spring in 2011 the Middle East and North Africa has in effect been a tale of the “haves” and “have nots”. The countries most affected by unrest, and in some cases war, have seen their economies stagnate. The more stable countries—which, not coincidentally, have also typically been oil-rich—have boomed on the back of fiscal stimulus and high oil prices. Yet 2014 should see the start of an unwinding of this trend, as the oil-rich “haves” take their foot off the fiscal pedal and the “have nots” begin to benefit from the upturn in the euro zone.

Nowhere has the opening of the fiscal spigots been more apparent than in the wealthy Gulf Co-operation Council (GCC). In the wake of the unrest in early 2011, all the GCC states dispensed with fiscal prudence and, buttressed by rising oil prices and production, their governments announced enormous public-sector salary and pension rises, huge new infrastructure and housing programmes, and increased subsidies. However, inevitably, such largesse has taken its toll on the public finances, and we expect all six of the GCC states to return either a narrower surplus, or, in the cases of Oman and Bahrain, wider deficits, in 2014.

GCC closes the fiscal spigots
In response, governments are being forced to act. Saudi Arabia, for example, recently announced a budget just 4% bigger than its predecessor (compared with a budgeted spending increase of 17% in 2013), and Oman’s 2014 budget projects spending just 5% up on its predecessor—a marked slowdown from the 29% spending increase announced in the 2013 budget. Similarly, for almost the first time since the collapse in oil prices in 1997‑98, several GCC governments are now publicly mulling tackling their overgenerous subsidy systems. In a blunt appraisal of the situation, the Omani oil and gas minister, Mohammed bin Hamad al‑Rumhi, told a conference in October that “subsidy is killing us” and, echoing his comments, the governor of the Central Bank of Bahrain, Rashid al‑Maraj, warned in December that the present situation is “not sustainable”. However, in reality, mindful of potentially fomenting unrest, any attempt to reform subsidies will be extremely cautious, with households almost certainly excluded, at least initially, from cuts, and industry prioritised.

Labour market policies will hinder businesses
The targeting of industries within the GCC is hardly going to help the business climate, however. Already, companies across the Gulf are being weighed down by increasingly aggressive labour market policies, which are focused on replacing foreign workers with locals. Saudi Arabia has been especially energetic in this regard, introducing a major reform to its expatriate sponsorship system, including inducements to encourage firms to hire nationals, and imposing fines on companies with more than 50% foreign workforces. Concurrently, a host of governments, including Oman, Saudi Arabia and Bahrain, have sought to encourage their wary citizens to embrace the private sector by raising the minimum wage for nationals. Overall, therefore, companies are increasingly being confronted with having to hire more, typically less well-educated and motivated locals, at a higher cost. Thus far, massive fiscal stimulus and high oil prices have shielded the GCC economies from the harmful effects of their labour policies. However, with oil prices stabilising (and forecast to decline in the coming years), the state will no longer be able to provide much of an economic prop, and thus there is a risk that the GCC’s stellar economic performance of recent years will become a thing of the past.

Economic growth
(% change, market exchange rate weights)
2011 2012 2013 2014
Middle East & North Africa 2.8 3.7 2.4 3.6
Oil exporters 2.7 4.0 2.3 3.8
Non-oil exporters 3.1 2.8 2.9 3.1
Gulf Co-operation Council 7.6 5.5 3.9 4.4
Algeria 2.4 2.5 3.2 3.6
Bahrain 2.1 3.4 3.9 3.2
Egypt 1.8 2.2 2.0 2.2
Iran 2.7 -5.6 -3.0 1.5
Iraq 8.6 8.4 5.2 8.2
Israel 4.6 3.3 3.2 3.4
Jordan 2.6 2.7 3.2 3.9
Kuwait 10.2 8.3 2.3 2.7
Lebanon 3.0 1.4 1.3 2.2
Libya -61.4 92.1 -2.3 -2.7
Morocco 5.0 2.7 4.0 4.1
Oman 0.3 8.3 4.2 4.1
Qatar 13.0 6.2 5.5 5.0
Saudi Arabia 8.6 5.1 2.9 4.0
Sudan -3.8 -4.2 3.0 2.9
Syria -3.4 -18.8 -19.0 1.8
Tunisia -2.0 3.6 2.8 3.0
United Arab Emirates 3.9 4.4 4.3 4.4
Yemen -10.5 0.1 3.8 5.1
Source: The Economist Intelligence Unit.

Governments eschew economic reform
Meanwhile, in the rest of the region the challenge is simpler: job creation, rather than worker replacement, is top of the agenda. However, in the absence of large oil reserves or swollen sovereign wealth funds, and confronted by long-fragile fiscal positions, boosting growth will prove an uphill task. This will be exacerbated in the near term by ongoing cuts in subsidies, which have typically been focused on larger users (namely, industry), rather than households. For example, a phased 50% cut in the price subsidy for gas and electricity in Tunisia is being initially focused on only large users, and the latest electricity price increase in Jordan for major users has prompted an outcry from industrialists.

More broadly, the business climate will be further impaired by the general governmental aversion to economic reform, as populations remain wary of the capitalist models pursued by the pre-2011 generation of leaders and technocrats (which, in reality, were always undermined by corruption and nepotism). The only exception to this trend will probably be Egypt, where the current interim administration (populated predominately by technocrats and academics) is working assiduously to create a more foreign investor friendly environment following the more statist policies of the previous Muslim Brotherhood administration.

However, it will be undermined in this by the unpromising political and security outlook, which will in turn depress domestic confidence and foreign investment—a handicap that will also affect Tunisia and Lebanon, as well as hydrocarbons-rich but hyper-unstable Libya and more resource-poor Yemen. Adding to the unhelpful climate, the ongoing war in Syria will also continue to spill over its borders, strengthening the economic headwinds in Lebanon, depressing the recovery in Jordan, and potentially setting back Iraq’s recent oil-led economic bounceback.

In contrast, thus far at least, Israel has managed to remain at least economically aloof from Syria’s problems, and indeed it is well placed to benefit from the strengthening economic picture in its two primary export markets, the US and the EU. The long overdue recovery in the euro zone will also offer a rare bright spot for some of the more troubled North African states, notably Morocco, Egypt, Tunisia and Algeria, reflecting its primary importance as an export market, and as a source of remittances and tourists.

A little help from their friends
Nevertheless, in many cases such positives will be more than outweighed by the continued fallout of the Arab Spring, prompting governments in the more unstable and less resource-rich states to continue to rely heavily on outside support. The IMF play a crucial role in this regard. Jordan, for example, has had a US$2bn lending facility in place since August 2012, and the IMF also formally agreed a US$1.74bn financing programme with Tunisia in June 2013. Despite popular misgivings about the conditions attached to this lending, the Fund is likely to remain relatively flexible in its assessments, primarily reflecting the overarching desire on the part of both itself and its financers to promote stability and assist in the democratic transition.

Nevertheless, talks between the IMF and Egypt over a US$4.8bn stand-by arrangement appear to have run into the ground. Prior to the ousting of the president, Mohammed Morsi, in early July, efforts to reach a deal had been persistently hindered by the then government’s failure to follow through on promised reforms. Since July, however, it appears that talks have in effect come to a standstill, with the new interim government eschewing the option, citing the need to wait until the installation of a permanent administration.

Egypt’s reticence about the IMF stems from a trend that has been increasingly prominent over the past few years: the disbursement of financial support from the region’s oil-rich states, in particular the GCC, to regional allies. In this regard, the GCC has been especially generous to the new leadership in Egypt, with Kuwait, the UAE and Saudi Arabia offering US$13.9bn in assistance However, it remains to be seen whether Qatar, which also gave a US$500m loan to Tunisia in April 2012, will curtail its hyperactive financial assistance programme, in line with the receding of support across the region for the Muslim Brotherhood (which Qatar has proactively backed).

Money buys influence
Even without active Qatari participation, however, Saudi Arabia and its allies in the GCC will continue to work assiduously to defend the current crop of autocratic rulers. For example, Saudi Arabia, the UAE, Kuwait and—possibly—Qatar will provide further backing to Jordan and Morocco, as part of their long-term pledge in 2011 to give US$5bn to support development projects. This reflects a desire on the part of the GCC to shore up political stability, as well as maintain influence, but humanitarian concerns will also increasingly come to the fore: amid the civil war in Syria, millions of refugees have poured into neighbouring Jordan and Lebanon, threatening the authorities’ ability to cope and prompting their governments to plead for foreign assistance. (In response, Saudi Arabia pledged US$3bn to Lebanon’s army in late December.) However, given the GCC’s states hostility to the Syrian government, Syria’s leadership will instead rely on Iran, which has set up a US$4bn credit line and, unlike other parts of the region, could see a major upturn in its fortunes if a diplomatic deal can be reached over its nuclear programme.

However, again, 2014 could mark a turning point. With the GCC’s fiscal situation deteriorating rapidly and austerity in vogue, the region’s non-oil producers will increasingly be left to fend for themselves (although this may not become truly apparent until next year). With governments under-resourced and the public sector typically inefficient, the responsibility for raising living standards and boosting job growth will once again have to be shouldered by the private sector—as was much the case prior to 2011.

Oil prices ‘will stabilise this year’

Current trends indicate demand and supply will increase, says expert

by Mohammad Ezz AL Deen | January 16, 2006

During the Gulf Research Centre’s third annual conference recently, Anas Alhajji, moderator of the Gulf Energy Program-me at the GRC, said he expects oil prices to stabilise in 2006.

Prices will only decline significantly, he said, if the US falls into recession as a result of a decline in government spending. “The soaring price in 2005 was due to the market fundamentals of limited supply and rising demand. Opec members ran out of marketable excess capacity, and non-Opec production was lower than expected, while global demand especially in the US, India and China continued to grow,” Dr. Alhajji said. Current trends estimate that both demand and supply will increase in 2006. However, oil prices will depend on the size of the additional production capacity, he added.

According to experts at the Dubai-based GRC, the Gulf is likely to experience a period of high growth in 2006, a modest decline in oil prices, significant political developments, rising tension, and a slow shift in focus towards Asia in the realm of international relations.

Emilie Rutledge, econ-omist at the GRC, said that high oil prices and the increasing global demand for oil triggered a boom for the GCC economies. The region’s aggregate GDP rose by 5.3 per cent, stock markets grew by 79 per cent and market capitalisation touched $1.1 trillion, an increase of 110 per cent over 2004. The aggregate GCC trade surplus stood at $253 billion in 2005, and imports of good and services rose by 20 per cent, she said. “Regional governments are generally aiming to avoid over-dependence on oil through economic diversification strategies, labour nationalisation policies and the privatisation process,” she said.

Vital issues
GRC Chairman Abdul Aziz Sager highlighted important issues in 2005, including the continuing political reform process that has firmly implanted itself in the region, the effects of the unprecedented increase in oil prices on the GCC economies, as well as the numerous security challenges that confront the region. “Despite the economic and strategic importance it represents, the developments in the Gulf region during 2005 were not reassuring as far as the status of Gulf security is concerned,” Sager added.

The GCC defence budget amounted to $34 billion during 2005, a $4 billion increase over 2004. The budget growth could be related to higher revenues because of oil prices, said Mustafa Alani, Director of the Security and Terrorism Programme at the GRC.