meed-logo

line1 line2 line3
SIGN IN / REGISTER

Riyadh maintains its economic lead

26 May 2023

 

Saudi Arabia has continued the performance it enjoyed heading into 2023 in the MEED Economic Activity Index, consolidating its lead with a combination of robust growth and sustained activity in its projects market.

Riyadh already enjoyed the fastest rate of real GDP growth in the region in 2022, at 8.7 per cent, and is maintaining 3.1 per cent growth in 2023 despite the current oil economy downsides. Its projects market has now seen two years of consecutive well-above-average activity, with $62bn in contract awards in the past 12 months.

As Brent crude oil prices have slipped and Opec+ production cuts have come into effect, energy exporters have seen their economic fortunes wane to varying degrees. For economies across the Middle East and North Africa (Mena), elevated inflation is also straining public finances as countries subsidise key imports.

GCC growth

The UAE is set to maintain 3.5 per cent real GDP growth, to be buoyed by non-oil growth in sectors such as real estate, leisure and tourism. The country is maintaining wide fiscal and current account surpluses and generally strong economic fundamentals across the board. 

The only caveat to its performance has been some slippage in project activity, with significant project completions seeing value exit the market above the level of replacement by project awards, which continue to sit well below historic levels.

Qatar is in a similar position. Its strong underlying economic fundamentals are being undermined to a degree by slippage in the country’s projects sector, which has also rapidly shed value as legacy projects have wrapped up. 

At the same time, Qatar’s projects market has been bolstered by a surge in energy industry spending, led by gas production maintenance on the North Field.

Kuwait is currently forecast for just 0.9 per cent real GDP growth in 2023, by far the most dismal projection in the GCC. 

Despite its sustained fiscal resilience, the country has a weak non-oil economy that is stymied further by the government’s conservative project spending. Kuwait’s projects market shed $70bn in value in the past five years, against less than $20bn in project contract awards.

Oman, though a slightly less solvent GCC member, is set for 1.7 per cent real GDP growth in 2023 and the lowest consumer price inflation rate in the region for the year, at 1.9 per cent. However, the country’s projects market is also tracking downwards at present.

Bahrain, the final GCC entry in the index, has sound growth and low unemployment, but continues to be weighed down fiscally by its debt trap, with the country continuing to borrow even at higher oil prices. Its projects market is also in a dismal state, with contract awards down by three-quarters on the country’s average annual awards in the past five years.

For economies across the Middle East and North Africa, elevated inflation is straining public finances as countries subsidise key imports

Mena performance

Jordan is in the opposite boat from the lower-performing GCC members. Its fiscal ill health is temporarily a secondary concern to the positive growth story in its projects market. 

The award of the $3bn Zarqa refinery expansion project, which has been in the works since 2002, is a huge boost to the country’s projects sector. The largest single award in the country ever recorded by regional projects tracker MEED Projects, it alone has made 2023 the best year for Jordan’s projects market since 2014.

Egypt’s 3.7 per cent real GDP growth forecast for 2023 is among the best in the region, but the country is still labouring under high inflation and persistent current account and fiscal deficits. The flip side of this is that the country has maintained its project spending, with an above-average award value in the past 12 months.

Iraq is also forecast for 3.7 per cent growth and has a strong trade surplus at present. While its projects sector has been in freefall this past year, a proposed record budget for 2023 could quickly reverse that trend.

Libya is set for the region’s highest growth rate, in theory, at 17.5 per cent, as the country’s oil industry returns to functionality after a year of contraction. The country remains fragile, with one in two young people unemployed. The country’s projects market is heading in a generally positive direction, however.

Algeria is on track for modest growth, ongoing high inflation and a deepening deficit amid the oil sector downsides. A lack of project activity is also weighing on the market.

Iran is battling fierce consumer price inflation, with a projected rate of more than 40 per cent in 2023, and faces general fiscal weakness amid ongoing sanctions. Project activity, however, has been on the uptick in the country in the past year.

Morocco and Tunisia both continue to struggle with twin current account and fiscal deficits and rising debt. While Morocco has higher growth forecasts for 2023, its projects market has witnessed a steep decline in the past year. Tunisia has weaker growth, but its projects market remains more stable.

The economies of Yemen and Lebanon are meanwhile set to contract this year. Both countries face persisting inflation changes, though Lebanon is dealing with more severe challenges and has 30 per cent unemployment.

About the index

MEED’s Economic Activity Index, first published in June 2020, combines macroeconomic, fiscal, social and risk factors, alongside data from regional projects tracker MEED Projects on the project landscape, to provide an indication of the near-term economic potential of Middle East and North African markets.

View the January 2023 index here

 

https://image.digitalinsightresearch.in/uploads/NewsArticle/10888901/main.gif
John Bambridge

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Decarbonising the global energy grid

    3 May 2024

    As the effort to tackle the climate crisis continues, global demand for renewable energy has been increasing. Unfortunately, the windiest and sunniest parts of the world are not necessarily where the need for energy is highest. This is where transmission plays a big role, linking energy generation to energy use as a product of global interconnection, and diversifying production from renewable sources to create a steadier supply of clean power. 

    Transporting energy across vast distances is not easy though. From the regulatory complexities of navigating cross-border infrastructure projects to the high costs of financing and the need for long-term planning and advanced technical capabilities, the challenges involved in successfully deploying long-distance transmission projects are varied. Overcoming these challenges is not a single party affair, but requires close collaboration across government, industry and non-governmental organisations. 

    We conducted a study with nearly 600 industry experts from across the world who highlighted the pressing need for co-ordinated global action to rapidly develop grid infrastructure. Integrating renewable energy into existing grids was cited by participants as one of the most significant barriers to achieving net-zero objectives, alongside supply chain vulnerabilities and ability to access the required capital.

    Multiple challenges

    From a technical standpoint, there are multiple considerations when implementing cross-border interconnections. Regions can operate using different technical parameters, such as different voltages or frequencies. Even within the same country, interregional variations can create bottlenecks. Adopting regional or international grid codes could mitigate these issues.

    Further challenges emerge when we take trading into account. This is where regulation can act as an enabler, facilitating the flow of electricity between countries. The European Union’s efforts to co-ordinate the design of its member state’s energy markets enables an increasingly smooth transmission of energy across the continent. Alongside this, existing infrastructure is outdated, requiring significant upfront investment to upgrade. Clarity on regulatory requirements and more transparency around plans for grid buildout, derisk funding for capital-intensive mega projects.

    Coordinated action is vital for the transfer of energy across borders and access to renewable sources of energy

    Positive benefits

    Despite these challenges, the upside must be stressed. Integrating power systems across borders has many positive societal benefits, decreasing costs and hence energy bills through economies of scale, increasing energy security and lowering the environmental impact of operations. On the latter more specifically, larger power systems are able to integrate higher shares of variable renewables. Globally, the sun is always shining and the wind blowing somewhere. 

    A common element, therefore, emerges: the need for increased cross-border co‑ordination. Whether it is bilateral, multi-lateral or unified, different models of inter-jurisdictional arrangements are needed for large-scale projects to support global energy interconnections. Our Xlinks project, which is using high-voltage direct current (HVDC) for transmission, is a standout example. 

    Such projects represent what is needed more in the world, the combination of infrastructure and renewable power across borders, bringing together the public and private sectors for energy security, supply and affordability in an environmentally friendly way. Transporting clean energy using HDVC cables is a crucial step in powering a net-zero and equitable future, and more of this is needed to aid the transition to lower-carbon and prosperous economies. 

    Political, technical and market hurdles can be overcome through collaboration and partnerships. Leveraging the collective expertise and resources of governments, regulators and the private sector can help ensure interconnections are developed quickly enough to support the energy transition. Grid buildout takes time. We have the resources required to meet ambitions, but stopping now is not viable. We must continue planning, building and maintaining large-scale infrastructure projects to meet the rising demand.

    Coordinated action is vital for the transfer of energy across borders and access to renewable sources of energy. This was the message from Cop28 and the UAE Consensus: to help progress and secure a cleaner, brighter future for us all, we must break down barriers and come together. 

     

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11736994/main.gif
  • Libya allocates $1.2bn for upstream oil project

    3 May 2024

     

    Register for MEED's guest programme 

    Libya has allocated LD6bn ($1.23bn) to develop the Hamada NC-7 concession in its latest budget, which was approved by Libya’s eastern-based parliament on 30 April, according to industry sources.

    The field development project was previously estimated to be worth between $4bn and $5bn.

    The project aims to develop 2.7 trillion cubic feet of gas reserves in the NC-7 block of the Ghadames basin.

    A consortium led by Italy’s Eni and including France’s TotalEnergies and UAE-based Adnoc operates the block.

    Development of the field was included in the 2024 annual budget of LD90bn ($18.5bn), excluding an item for development projects, which the Benghazi-based government of Osama Hamad unanimously approved.

    Hamad came to power in March 2023 and is allied with the military commander Khalifa Haftar, who controls the east and large parts of the southern region of Libya.

    Progress on developing the Hamada NC-7 concession has been slow amid concerns among politicians about the involvement of foreign oil companies in key hydrocarbon assets.

    On 15 December 2023, the Tripoli-based Ministry of Oil & Gas issued a statement condemning the terms of the planned gas development contract between Libya’s state-owned National Oil Corporation (NOC) and the consortium led by Eni.

    In the statement, the Ministry of Oil & Gas described the deal as a “violation of Libyan legislation on oil contracts”.

    Earlier this year, NOC announced a plan to execute 45 greenfield and brownfield projects to try to boost the country’s oil production from 1.25 million barrels a day (b/d) to 2 million b/d.

    Farhat Bengdara, the chairman of NOC, said that the projects had a total estimated cost of $17bn-$18bn.

    Bengdara also confirmed plans to launch an oil and gas licensing round at the end of 2024 or early 2025.

    Libya is aiming to hit its 2 million b/d target within three years.

    Bengdara said that gas monetisation will remain a strategic focus as the country pushes to increase exports to Europe.

    Libya is only using 25% of the capacity of its Greenstream pipeline to Italy.

    The North African country also flares significant volumes of natural gas and has 12 projects under way that aim to reduce gas flaring to almost zero, according to Bengdara.

    In recent years, Libya has struggled to execute large projects amid significant political instability.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11735260/main.gif
    Wil Crisp
  • GE Vernova invests in Xlinks

    2 May 2024

    US-headquartered GE Vernova has invested $10.2m in Xlinks First, the investment company established by UK-based startup Xlinks to deliver the $18bn Morocco-UK power project.

    This investment equates to a minority shareholding in the company, which is developing a project comprising wind and solar generation as well as battery storage, with a total combined capacity of 3,600MW, to be transmitted from Morocco to the UK.

    Xlinks said the investment will “further accelerate delivery and buildout of the project”.

    GE Vernova joins at least four other investors in the project.

    Other investors include Africa Finance Corporation, which invested $14.1m in April; Abu Dhabi National Energy Company (Taqa), $30.7m; the UK’s Octopus Energy, $6.23m; and France’s Total Energies, $25.4m.

    The planned electricity generation and battery storage facilities, located in south Morocco, will be connected exclusively to the UK via 4,000-kilometre high-voltage, direct current (HVDC) cables.

    In December last year, Xlinks signed a contract with Canada-headquartered WSP to provide technical advisory services for the project.

    WSP will support Xlinks with route optimisation, power systems and interface management for the plan to construct the project.

    The Morocco-UK power project entails building 10,500MW solar and wind farms in Morocco’s Guelmim-Oued Noun region and sending 3,600MW a day of energy exclusively to the UK via four 3,800-kilometre HVDC cables.

    The HVDC network is envisaged to run from the UK’s south coast, passing France, Spain and Portugal undersea and then onshore to a planned solar and wind energy project in Morocco.

    This renewable energy-sourced electricity amounts to nearly 8% of the UK’s current requirements, equivalent to powering 7 million homes by 2030.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11734222/main5830.jpg
    Jennifer Aguinaldo
  • Awards buoy Oman’s green hydrogen strategy

    2 May 2024

    Commentary
    Jennifer Aguinaldo
    Energy & technology editor

    Oman has awarded two additional land blocks designed to develop green hydrogen projects.

    The latest land block concessions in Dhofar were awarded to two consortiums. One comprises a team of France's EDF Group and EDF Renewables, with partners Japanese Electric Power Development Company (J-Power) and the UK-headquartered Yamna Company.

    Another team comprises UK investment firm Actis and Australian metals firm Fortescue.

    This brings the total number of land blocks awarded through the public auction process spearheaded by Hydrogen Oman (Hydrom) to four, exclusive of the four legacy initiatives signed or agreed upon already.

    *Budgets are MEED estimates if not publicly disclosed. Sources: MEED, Hydrom

    A limited gas supply and network strongly incentivises Oman to build a green hydrogen-centric downstream sector that will provide feedstock to domestic industrial plants and generate derivatives for the local and export markets.

    Stakeholders have implemented a strategy, including setting up an infrastructure company catering to these projects. The target is to generate 1 to 1.5 million tonnes a year (t/y) of green hydrogen by 2030 and 7.5 to 8.5 million t/y by 2050.

    The blueprint envisages a complete green hydrogen ecosystem, from the production of renewable energy and its distribution to electrolysis plants and hydrogen derivatives conversion plants to storage and export terminals.

    Omani ports' existing relationships with European stakeholders and growing alliances with other countries could also help seal future offtake agreements for the planned facilities.

    As things stand, the consortiums that won the land auctions and the legacy initiative partners provide much gravitas to Oman's green hydrogen programme. They comprise energy old guards such as BP and Shell that are keen to decarbonise, private companies aiming to balance their investment portfolios with clean energy investments, and offtakers or trading companies that are grappling with net-zero targets.

    Yet the most obvious question remains. Given the eye-popping foreign direct investments these complex projects entail, not all are likely to achieve a final investment decision within three years. This seems to be the window required for the projects to start production before 2030.

    But like any emerging industry, the risks can only be properly assessed and mitigated as the first projects move toward the execution phase.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11733331/main.gif
    Jennifer Aguinaldo
  • Operationalise loss and damage fund says Al Jaber

    2 May 2024

    Steps must be taken to ensure a fully functioning Loss and Damage Fund, following an agreement at Cop28 to operationalise the fund, according to Cop28 President Sultan Al Jaber.

    “While delivering an agreement to operationalise the Fund at Cop28 was a huge breakthrough for climate progress more needs to be done,” Al Jaber said during the first board meeting of the fund on 30 April.

    The Loss and Damage Fund, which was first proposed in the 1990s, aims to help developing countries cope with the impact of extreme global warming events such as droughts and floods.

    Al Jaber cited the need to build a fully functioning fund, which will be endorsed at Cop29 in Baku, which will be “disbursing funds soon after and a Fund that delivers lasting, positive, socio-economic impact for decades to come."

    "While it took over three decades to establish this Fund, climate change has not stood still. Every region of the world is now vulnerable…the impacts of climate change are a clear and present danger to lives and livelihoods everywhere."

    Al Jaber’s message resonates closer home given the recent storms hitting the UAE, which brought some emirates to a standstill in mid-April.

    Heavy rainfall inundated Dubai and the Northern Emirates on 16 April, causing flooding and significant property and infrastructure damages.

    A total of $792m has been pledged for loss and damage funding arrangements – of which $662m has been pledged to the Fund to date – including a $100m contribution each from the UAE and Germany and $75m from the UK.   

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11732746/main.jpg
    Jennifer Aguinaldo