Mena region set to outpace global economic growth in 2022

The Middle East and North Africa is set to be the only region in the world to record a rise in economic growth this year, driven by higher oil prices and an acceleration in business-friendly reforms, bucking the global trend of slower expansion.

The Mena region's economies are forecast to expand 4.3 per cent in 2022, from an estimated 3.7 per cent in 2021, amid higher oil output and a sustained recovery in the non-oil sector, Fitch Ratings said in its Mena Key Themes 2022 report.

Oil-exporting countries in the region are forecast to lead the growth as their economies expand 4.4 per cent in 2022, from an estimated 3.5 per cent in 2021, it said.

"Mena will be the only region worldwide to see growth rate rising in 2022," the rating agency said. "This is in contrast to other regions worldwide, where growth will slow down or remain flat."

Oil prices, which have already rallied about 20 per cent so far this year, are likely to surpass $100 per barrel due to strong global demand, market strategists said last week. Continuing worries about supply disruptions fuelled by frigid US weather and political tension among major world producers have fuelled the oil price gains.

Moreover, countries in the region are pursuing long-term economic transformation efforts. The UAE, the Arab world’s second-biggest economy, has embarked on economic, legal and social structural reforms aimed at strengthening its business environment, to attract foreign investment, draw high-skilled talent and incentivise companies to set up or expand their operations in the country.In 2022, six out of the eight fastest-growing economies in Mena will be oil producers, Fitch said.

The non-oil sectors in oil-producing countries will also record robust growth, buoyed by high vaccination rates, events such as Expo 2020 Dubai and the Fifa World Cup in Qatar, and spillovers from high oil prices, the report said. Economic expansion in Gulf countries will rise to nearly 5 per cent this year, outperforming North Africa and Levant, thanks to double-digit growth in hydrocarbon output and strong growth in the non-oil sector.

Growth in Egypt, the Arab world's third-biggest economy, will average 5.3 per cent in the financial years of 2021-2022 and 2022-2023, mainly due to a rebound in investment, rising tourist arrivals and strong private consumption, Fitch said.

However, a "a two-speed recovery" will unfold across the Mena region this year as many of the smaller economies will not fully rebound to their pre-pandemic real economic output, the report said. Slow vaccination rates and geopolitical risks are among the factors that will drag on some countries' growth, including regional "underperformers" Lebanon, Libya, Syria, the West Bank, Gaza and Yemen.

"Yemen, Syria, Iraq and Lebanon, which will fail to recover to the 2019 output levels, are among Mena countries that have the slowest vaccine rollouts," Fitch said.

Smaller economies with slower vaccination rates are unlikely to catch up with outperformers such as Israel, Bahrain, the UAE and Saudi Arabia. "This will delay the normalisation of activity and keep economic recovery subdued," the report said.

The UAE led the latest Covid-19 global resilience rankings, followed by Cyprus, Bahrain and Israel. The Emirates was placed first in the Pandemic Resilience Index 2022, which was compiled by the Consumer Choice Centre, a US-based advocacy group. Mass testing, vaccination approvals and distribution of booster shots were among the vital factors that helped the UAE to secure the top spot.

Overall, the Mena region’s fiscal deficit will narrow sharply to 1.9 per cent of gross domestic product in 2022, from an estimated 3.6 per cent in 2021, marking the smallest deficit in nearly a decade.

"High energy prices and rising hydrocarbon output will increase revenues for oil exporters, while a pick-up in activity will boost revenues for oil importers," Fitch said. "Moreover, most governments will pare back pandemic-related expenses to curb overall spending."

However, some of the countries that are coping with weaker fiscal positions and high debt loads are set to increase fiscal consolidation efforts to address structural vulnerabilities, it said.

Fitch expects that the easing health crisis, growing population and greater focus on a green transition will drive the larger Mena countries to advance their long-term economic transformation efforts.

Countries will focus on improving their business environment, attracting foreign investments and increasing the private sector’s role in the economy, it said. "GCC countries will spearhead diversification reforms," Fitch said.

Oman is likely to speed up its privatisation efforts, while Qatar will seek to modernise its legislation to attract investors. "Egypt and Israel will engage in a wave of pro-growth, liberalisation reforms," Fitch said, adding that key areas of focus will be "agriculture, transportation, telecommunications and technology".