The Middle East and North Africa (MENA) region will witness economic growth driven by the non-oil sector as oil prices are unlikely to rise significantly soon, according to report by Atradius, a global provider of credit insurance.
The report forecasts that the region will have a 3.6 percent and 4 percent economic growth in 2021 and 2022 respectively, with the most prominent industries including fintech, information and communication, pharmaceuticals and education supporting the development. Other focus areas will be helping the expansion of the manufacturing sector in MENA’s push for renewable energy.
In 2020, the pandemic hit has weakened the region’s economy severely and it has caused an unexpected slowdown of -0.7 percent. The report suggests that by focusing on fiscal consolidation, technological innovation and economic diversification, the oil-dependent economies can curb this damage and restore growth.
The report further added that restructuring in the oil sector has witnessed traditional oil exporters transferring their market share to the US shale industry and losing control over the price of oil.
While a potential easing of sanctions on Iranian oil exports will bring another risk which would make the most financially stable GCC countries like Kuwait, Saudi Arabia, UAE and Qatar, vulnerable and struggle to secure current living standards for its future generations.
When the steady flow of petrodollars diminished, it created a double deficit in the region’s economies which in turn, is weakening the MENA governments’ ability to support other traditional growth factors like construction and real estate, which contribute between 10-15 percent to the GDP of GCC countries.
“The twin oil-coronavirus crisis has had a large negative impact on most sectors in the non-oil economy with significant credit risk implications,” says Schuyler D’Souza, Managing Director of Atradius in the Middle East region.
The pro-growth policies of Saudi Arabia are expected to rejuvenate the construction sector whereas the hydrocarbon investments will support growth in the medium term in line with the Kingdom’s diversification efforts as part of Vision 2030.
The UAE’s prolonged recovery will be spurred by the postponed World Expo and its ability to attract foreign investment and its status as a renewables pioneer, the report added.
“The Middle East is well endowed with renewable energy sources and raising funds for renewable energy projects is becoming easier. These efforts must be taken to the next level because holding on to the current economic model will form an increasing drag on growth,” stated Niels De Hoog, Senior Economist, Atradius.
