GCC countries with Qatar at the front continue to be the main engine of all economic growth in the MENA region. Would this Economic growth in 2014 MENA lead by the GCC countries be essential for any growth to converge within the MENA region in a near or distant future ?
Real GDP growth in the GCC was estimated at 4.1% in 2013 with the highest growth rate recorded in Qatar with 6.5%. It was however only 2.7% for the rest of the MENA region. This growth in the GCC linked to a recovery in global energy demand that coupled with large investment spending is expected to continue apace in at least the near future. The rest of the MENA is however likely to continue to trail behind; this divergence believed to be caused by the lack of political stability and structural reforms. These being essential for any growth to converge within the MENA region in a near or distant future. The difference in growth between the GCC countries and the other MENA countries is merely a continuation of a trend established in recent years and is due mostly to the rapid expansion of the non-hydrocarbon sector that followed large investment spending.
Qatar led the GCC with double-digit growth in the past years, fuelled mainly by the non-hydrocarbon sector. In Saudi Arabia, the non-hydrocarbon sector expanded strongly and reached lately 4.9% in both private and public investments and higher consumption. In the UAE, large investments in the oil sector and a strong recovery in construction and real estate are estimated to have led to higher growth up to 4.8%. Bahrain with 4.9% and Oman at 5.0% are also estimated to have grown rapidly on a continued diversification drive, whilst Kuwait not far off these figure nevertheless lagged behind.
The weaker growth experience in the rest of the MENA region in 2013 is believed to be due to geopolitical factors. The Syrian crisis impacted and depressed growth in Syria and its neighbouring Jordan and Lebanon to a lesser extent Iraq. Political instability negatively affected growth in Egypt (2.1%), Tunisia (2.7%) and Libya (-9.4%). Iran (-1.7%) continued to suffer from international sanctions. On the other hand, Mauritania (6.7%) and Morocco (4.5%) expanded and grew relatively rapidly.
The trend of a two-speed MENA is likely to be maintained in 2014 and beyond, especially due to a gradual recovery in global energy demand and a few new oil and gas developments in the region. Large investment spending in the non-hydrocarbon sector is in the meantime supposed to induce growth acceleration in Qatar (6.8%), Saudi Arabia (4.5%) and UAE (5.0%).
The political instability in other countries and the rest of the MENA (Syria and others in the Mashreq region) will limit the potential for growth and will be linked to large fiscal deficits (Egypt and Tunisia). The situation in Libya will lead to a continued contraction of the economy while an easing of international sanctions could lead to a moderate recovery in Iran. As a whole, the rest of the MENA region is likely to reach only 2.5% growth in 2014.
Several investment and banks experts stated that this continued divergence in growth between the GCC and the rest of the MENA region has important implications. It does show the need for political stability, subsidy reforms to reduce unsustainable fiscal deficits and the establishment of a business-friendly environment for higher foreign direct investment in the rest of MENA region in order for growth to converge and eventually reach the GCC levels.
Mehdi Lazar, M.S., Ph.D.