Atradius’ latest report on Middle East and North Africa analyses challenges faced by the region and identifies opportunities for economic diversification to fuel future growth

HONG KONG SAR - MediaOutReach - 1 December2020 - The oil-dependent economies of the Middle Eastand North Africa (MENA) have been dealt a fresh blow by COVID-19, but theregion can limit the damage and rejuvenate growth by focusing on fiscalconsolidation, technological innovation and economic diversification, accordingto Atradius' latest MENA economic report.

Buffeted by geopoliticalchallenges and a range of social issues, the MENA region -- a grouping thatincludes the Gulf Cooperation Council (GCC) nations -- has been further weakenedby the pandemic and faces an unprecedented slowdown of -7.0%in 2020, the report notes, arguing that it's in the countries' bestinterests to intensify diversification efforts, which have been underway forsome time now, in order to secure long-term growth.

Shakeups in the oil industryhave seen traditional oil exporters cede market share to the US shale industryand lose control over the price of oil while a potential easing of sanctions onIranian oil exports poses another risk, leaving even the most financially robustGCC countries, such as Kuwait, Saudi Arabia, UAE and Qatar, vulnerable andstruggling to maintain current living standards for coming generations, accordingto the report.

As the steady flow ofpetrodollars -- which helps fund government spending and private consumption -- hasdwindled, it has contributed to widening the persistent twin deficits of theregion's economies. This, in turn, is blunting the policy tools at the disposalof MENA governments and hurting their ability to support other traditionalgrowth engines, such as construction and real estate, which contribute between10-15% to the GDP of GCC countries, according to the report.

"Thetwin oil-coronavirus crisis has had a large negative impact on most sectors inthe non-oil economy with significant credit risk implications,"noted SchuylerD'Souza, Managing Director Middle East, Atradius. "The IMF in its latest report on the region estimatesthat thedefault risk for corporates has doubled and Atradius can confirm that paymentperformance has deteriorated across the weaker sectors due to falling demand,cash flow constraints and insufficient support from banks."  

Other key findings include:

*In Saudi Arabia, pro-growthpolicies are expected to revive the construction sector while hydrocarboninvestments will underpin growth in the medium term alongside diversificationefforts as part of Vision 2030. Local skill shortages coupled with an exodus ofexpats are key challenges.

*The UAE, one of the mostdiversified Gulf states, has a promising medium-term outlook. Its protractedrecovery will be stimulated by the postponed World Expo, its ability to attractforeign investment, and its status as a renewables pioneer.

*Egypt's accommodative monetarypolicy is expected to partially offset a drop in tourism, infrastructurespending will boost construction while new gas finds will enhance exports.

The report forecasts the MENAregion will expand by 3.6% in 2021 and 4.0% in 2022 -- most of which will bedriven by the non-oil sector as oil prices are unlikely to rise significantlyin the near future -- and identifies the most promising sectors to help drivegrowth in the region. These include education, information & communication,fintech and pharmaceuticals. Other focus areas are aiding the growth of the manufacturingsector in North Africa and the Middle East's push for renewables.

"North African economies,specifically Morocco and Tunisia, can build on the ongoing shift to high-techmanufacturing and expansion of their trade networks while the Middle East iswell endowed with renewable energy sources and raising funds for renewableenergy projects is becoming easier," noted Niels De Hoog, Senior Economist,Atradius. "These efforts must be taken to the next level because holding on to thecurrent economic model will form an increasing drag on growth."

Get the Atradius MENA EconomicReport here: https://atradius.com.hk/en/publications/economic-research-mena-economic-growth-engine-falters.html

About Atradius

Atradius is a global providerof credit insurance, surety and collection services, with a strategic presencein over 50 countries. The credit insurance, bond and collection productsoffered by Atradius protect companies around the world against the defaultrisks associated with selling goods and services on credit. Atradius is amember of Grupo Catalana Occidente (GCO.MC), one of the largest insurers inSpain and one of the largest credit insurers in the world. You can find moreinformation online at www.atradius.com.hk

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