meed-logo

line1 line2 line3
SIGN IN / REGISTER

Mena economies living dangerously

27 December 2023

 

Gaza conflict puts the region on edge once again

Middle East and North Africa (Mena) economies enter 2024 in a state of flux. While most are well placed to continue their post-pandemic growth trajectory, albeit in the context of weaker oil sector growth, some states – Egypt and Tunisia notable among them — are under pressure to undertake painful reforms in order to elicit IMF funding packages.

Overall, hopes are high that growth in the Mena region will at least outpace the sluggish performance of the past year.  Policymakers across the region will also be looking to double down on the private sector dynamism that saw non-oil growth outpace hydrocarbons performances in 2023.

The overall rear-view mirror is not especially encouraging. The IMF’s Regional Economic Outlook has Mena real GDP slowing to 2 per cent in 2023 from 5.6 per cent in 2022, a decline attributed to the impact of lower oil production among exporters and tighter monetary policy conditions in the region’s emerging market and middle-income economies. Geopolitical tensions – not least the Gaza conflict – and natural disasters in Morocco and Libya have also weighed on regional economies. 

GDP growth

The World Bank estimates that in per capita terms, GDP growth across the region decreased from 4.3 per cent in 2022 to just 0.4 per cent in 2023. By the end of 2023, it says, only eight of 15 Mena economies will have returned to pre-pandemic real GDP per capita levels.

Much hinges on developments in the oil market. The Opec+ decision on 30 November to agree voluntary output reductions that will extend Saudi and Russian cuts of 1.3 million barrels a day (b/d), is designed to shore up prices, but it will come at a cost. 

Saudi Arabia’s GDP data for the third quarter of 2023 revealed the full impact of output restraint, as the economy contracted at its fastest rate since the pandemic. Saudi GDP notably declined by 3.9 per cent in the third quarter compared to the previous quarter – after the kingdom implemented an additional voluntary 1 million b/d oil output cut.

As a whole, GCC economic growth has been tepid, despite a resurgence in services hotspots such as the UAE, where retail and hospitality sectors have boomed. The World Bank’s Gulf Economic Update report, published in late November, sees GCC growth at just 1 per cent in 2023, although this is expected to rise to 3.6 per cent in 2024. 

Oil sector activity is expected to contract by 3.9 per cent in 2024 as a result of the recurrent Opec+ production cuts and global economic slowdown, according to Capital Economics. However, weaker oil sector activity will be compensated for by non-oil sectors, where growth is projected at a relatively healthy 3.9 per cent in 2024, supported by sustained private consumption, strategic fixed investments and accommodative fiscal policy.

“There has not been much GDP growth this year, but the non-oil economy has been surprisingly robust and resilient, despite the fact that the liquidity has not been as much of a driver as it was a year earlier,” says Jarmo Kotilaine, a regional economic expert. 

“Of course, the cost of capital has gone up and there have been some liquidity constraints. But we do have a lot of momentum in the non-oil economy.” 

In Saudi Arabia, beyond its robust real estate story, the ventures implemented under the national investment strategy are unfolding and semi-sovereign funds are playing a key role in ensuring continuity. “You are seeing more of these green energy projects across the region. It really has been a surprisingly positive story for the non-oil economy,” says Kotilaine.

Government spending

Fiscal policy will remain loose, at least among Mena oil exporters, whose revenues endow them with greater fiscal fire-power. 

Saudi Arabia’s 2024 pre-budget statement bakes in further budget deficits, with government spending for 2023 and 2024 expected to be 34 per cent and 32 per cent higher, respectively, than the finance ministry had projected in the 2022 budget.  This is not just higher spending on health, education and social welfare, but also marked increases in capital expenditure, including on the kingdom’s gigapojects. 

That luxury is not open to the likes of Bahrain and Oman, the former recording the highest public debt-to-GDP ratio in the region at 125 per cent in 2023. Those two Gulf states will need to maintain a closer watch on their fiscal positions in 2024. 

There are broader changes to fiscal policy taking place in the Gulf states, notes Kotilaine, some of which will be registered in 2024. “There are areas that the government will play a role in, but in a much more selective and focused manner. Much less of the overall story now hinges on government spending than it used to in the GCC,” he says.

For 2024, a consensus is emerging that the Mena region should see GDP growth of above 3 per cent. That is better than 2023, but well below the previous year and, warns the IMF, insufficient to be strong or inclusive enough to create jobs for the 100 million Arab youth who will reach working age in the next 10 years. 

The Mena region’s non-oil buoyancy at least offers hope that diversification will deliver more benefits to regional populations, reflecting the impact of structural reforms designed to improve the investment environment and make labour markets more flexible. 

“The labour market in the region continues to strengthen, with business confidence and hiring activity reverting to pre-pandemic levels,” says Safaa el-Tayeb el-Kogali, World Bank country director for the GCC. “In Saudi Arabia, private sector workforce has grown steadily, reaching 2.6 million in early 2023. This expansion coincides with overall increases in labour force participation, employment-to-population ratio, and a decrease in unemployment.”

El-Kogali adds that non-oil exports across the GCC region continue to lag, however. “While the substantial improvement in the external balances of the GCC over the past years is attributed to the exports of the oil sector, few countries in the region have also shown progress in non-oil merchandise exports. This requires close attention by policymakers to further diversify their exports portfolio by further promoting private sector development and competitiveness.”

Regional trade

There is a broader reshaping of the Gulf’s international trading and political relations, shifting away from close ties with the West to a broader alignment that includes Asian economies. The entry of Saudi Arabia, the UAE and Iran to the Brics group of emerging market nations, taking effect in 2024, is a sign of this process.

The decision of the Saudi central bank and People’s Bank of China in November 2023 to agree a local-currency swap deal worth about $7bn underscores the kingdom’s reduced reliance on the Western financial system and a greater openness to facilitating more Chinese investment.

“You want to be as multi-directional, as multi-modal as you can,” says Kotilaine. “For the Gulf states, it is almost like they are trying to transcend the old bloc politics. It is not about who your best friend is. They want to think of this in terms of a non-zero sum game, and that worked very well for them during the global financial crisis when they had to pivot from the West to the East.”

Near-term challenges

While long-term strategic repositioning will influence Mena economic policy-making in 2024, there will be near-term issues to grapple with. High up that list is the Gaza conflict, the wider regional impacts of which are still unknown. 

Most current baseline forecasts do not envisage a wider regional escalation, limiting the conflict’s impacts on regional economies. The initial spike in oil prices following the 7 October attacks dissipated fairly quickly. 

Egypt is the most exposed to a worsening of the situation in Gaza, sharing a land border with the territory. However, the Gaza crisis is not the only challenge facing the North African country 

Elections set for 10 December will grant President Abdelfattah al-Sisi another term in office, but his in-tray is bulging under a host of economic pressures. 

Inflation peaked at 41 per cent in June 2023. A currency devaluation is being urged, as a more flexible pound would offer a better chance of attracting much-needed capital inflows. 

The corollary is that it would have to be accompanied by an interest rate hike. Capital Economics sees a 200 basis point increase to 21.25 per cent as the most likely outcome, ratcheting up the pain on Egyptian businesses and households. 

A deal with the IMF would do much to settle Egyptian nerves, with a rescue plan worth $5bn understood to be in the offing. But Egypt has to do more to convince the fund that it is prepared to undertake meaningful fiscal reforms.  Privatisations of state assets, including Egypt Aluminum, will help.  

Other Mena economies will enjoy more leeway to chart their own economic path in 2024. Iraq has achieved greater political stability over the past year, and may stand a better chance of reforming its economy, although weaker oil prices will limit the heavily hydrocarbons-dominated economy’s room for manoeuvre. 

Jordan is another Mena economy that has managed to tame inflation. Like Egypt, however, the country is also heavily exposed to what happens in Gaza. 

Few could have predicted the bloody events that followed the 7 October attacks. Mena region economic strategists will be hoping that 2024 will not bring further surprises.

Can the Gulf build back better?

The GCC has done much to put itself on the global map through effective reputation building. But, notes regional economic expert Jarmo Kotilaine, the focus of policy will now have to change from building more to building better, making the existing infrastructure and systems operate with greater efficiency. 

Above all, the region will need dynamic and adaptable companies and an economically engaged workforce. 

“The reality is the GCC has a lot of capital committed to the old economy. There is the question of how much of that should be upgraded, or made to work better, because fundamentally, one of the region’s big challenges is that local economies have very low levels of productivity.”   

It is by upgrading what the GCC has, by incorporating technology and energy efficiency, that the region can make productivity growth a driver, he tells MEED.

“One area where GCC economies have started to make progress is in services: logistics, tourism, financial services. This is bringing money to the region,” he says. 

“We are also starting to see new potential export streams with things like green energy, and obviously green hydrogen.  But the Gulf states have to manufacture more, and they have to manufacture better.”

 

https://image.digitalinsightresearch.in/uploads/NewsArticle/11360413/main.gif
James Gavin

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

Click here to register
Exclusive from Meed
Related Articles
  • Dubai approves metro extension to Al-Maktoum airport

    10 November 2026

    Dubai’s Executive Council has approved a project to extend the Dubai Metro’s Route 2020 to Al-Maktoum International Airport City, with passenger services scheduled to begin operations in 2031.

    Sheikh Hamdan bin Mohammed bin Rashid Al-Maktoum, Crown Prince of Dubai, announced the decision following a council meeting held during the UAE Government Annual Meetings 2026.

    The rail project forms part of a package of strategic schemes worth over AED11bn ($3bn) approved by the council.

    The wider approvals include a comprehensive framework to upgrade community facilities and public services by 2040, with priority given to residential communities for UAE citizens.

    The project approval follows the procurement of detailed design work for the rail link. MEED exclusively reported in September that Dubai’s Roads & Transport Authority (RTA) had awarded US-based engineering consultancy Aecom the design contract for the Route 2020 extension.

    The planned extension will run for about 3 kilometres from the existing Expo 2020 terminus station to connect directly with the West Terminal of Al-Maktoum International airport. The scheme will add two new stations to the network.

    The existing Route 2020 corridor is a 15km spur that branches off the Dubai Metro Red Line at Jebel Ali station. It comprises 11.8km of elevated viaduct and 3.2km of underground track, serving five elevated and two underground stations.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21301168/main.png
    Yasir Iqbal
  • Egypt seeks to accelerate gas pipeline project with Libya

    10 November 2026

    Egypt aims to accelerate a range of energy projects with Libya, including gas pipeline links, according to a statement from the Egyptian Foreign Minister Badr Abdelatty.

    Other projects include a scheme to refine Libyan crude in Egypt and an electricity interconnection.

    Abdelatty’s comments came in a ministry statement after a meeting with Libya’s acting oil and gas minister, Khalifa Abdulsadek, in the Libyan capital of Tripoli.

    Egypt is currently trying to address an energy squeeze that has escalated ​due to elevated global liquefied natural gas (LNG) prices since the ​start of the US-Israeli war on Iran in February of this year.

    In his statement, Abdelatty called ‌for ⁠cooperation on petroleum products and the completion of projects to refine Libyan oil in Egypt and re-export ​it.

    He also said that Abdulsadek would ​visit ⁠Cairo soon to continue technical talks with Egypt’s petroleum and electricity ministers.

    The ⁠statement ​did not provide ​details on costs or the status of the projects.

    Plans for new gas pipeline links with Libya are just one of several ambitious gas pipeline plans Egypt is pursuing.

    In October, the Italian oil and gas company Eni signed the main engineering, procurement, construction and drilling contracts for a project to export gas from reserves in Cyprus using a major pipeline to Egypt.

    The project includes contracts with several companies that will develop infrastructure in both Egypt and Cyprus.

    The awards included a $170m contract won by Egypt’s Petrojet for a new onshore gas pipeline in Egypt that will help transport gas to Egypt’s Damietta LNG facility.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21273777/main.jpg
    Wil Crisp
  • Omani company signs Kuwait drilling contract

    10 November 2026

    Oman’s MBPS has signed a drilling rig contract worth $127.3m with state-owned upstream operator Kuwait Oil Company (KOC).

    Under the terms of the deal, MBPS will supply and operate three newly built 1,000-horsepower land rigs for drilling and workover operations, according to a company statement.

    The UAE-based oil field services company Adnoc Drilling is a majority shareholder in MBPS.

    The chief executive of MBPS, Salim Al-Harthy, said: “This is another important milestone for MBPS and a strong reflection of KOC’s confidence in our capabilities.

    “It further strengthens our presence in Kuwait and our commitment to delivering safe, reliable and efficient drilling and workover services across the region.”

    He : “My sincere appreciation to KOC for their continued trust, and to our MBPS team for their hard work and dedication in making this possible.”

    In October last year, KOC said it planned to spend KD1.2bn ($3.92bn) on its exploration drilling programme through 2030.

    The spending was part of a KD9.8bn budget, the company’s biggest ever, allocated for drilling and maintenance of up to 6,193 wells by the end of this decade.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21273731/main.png
    Wil Crisp
  • Adnoc Drilling wins $315m Kuwait offshore rig deals

    10 November 2026

    Register for MEED’s 14-day trial access 

    Abu Dhabi National Oil Company (Adnoc Group) subsidiary, Adnoc Drilling, has been selected for two offshore drilling rig contracts in Kuwait with a combined maximum value of KD96.55m ($315m), according to documents published by Kuwait’s Official Gazette.

    The Higher Purchasing Committee of state-owned Kuwait Petroleum Corporation (KPC) has given approval for its subsidiary Kuwait Oil Company (KOC) to award the contracts to the Abu Dhabi-listed drilling contractor after Adnoc Drilling submitted the lowest compliant bids.

    While the maximum combined contract value has been confirmed as KD96.55m ($315m), the individual contract values, rig identities, durations and expected commencement dates have not been disclosed.

    The approval comes as Kuwait moves to expand offshore exploration and development following a series of discoveries in its territorial waters.

    It is currently unclear how Kuwait will provide security for its planned offshore oil and gas projects in the Gulf, adding uncertainty to the outlook for these plans.

    On 5 October, KPC chief executive Shaikh Nawaf Al-Sabah reiterated the company’s commitment to developing three major offshore oil discoveries in the region.

    KPC initially launched the Al-Seef project to develop the three fields in February, just weeks before the US and Israel attacked Iran, triggering a regional war that has sparked a crisis in Kuwait’s oil and gas sector.

    The regional conflict has seriously disrupted shipping through the Strait of Hormuz, a key export route for Kuwaiti oil.

    The war has also led to dozens of attacks on Kuwaiti oil and gas infrastructure, with at least one causing damage to a Kuwaiti offshore platform.

    This attack took place on 12 July, when a drone struck a KOC offshore drilling platform in Kuwaiti territorial waters, causing damage to the platform and injuring one worker.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21273678/main2430.jpg
    Wil Crisp
  • Aramco-backed firm tenders logistics hub expansion

    9 November 2026

     

    Asmo, the logistics joint venture of Saudi Aramco and DHL Supply Chain, has set a 15 November deadline for a contract to expand the logistics complex at King Salman Energy Park (Spark) in Saudi Arabia’s Eastern Province.

    The logistics hub will add over 124,000 square metres (sq m) at Spark.

    Al-Khobar-based engineering firm House of Consulting Office is the project consultant.

    The tender for the expansion works comes shortly after Asmo awarded an estimated SR820m ($218m) contract to build the logistics complex’s first phase in May this year.

    The overall project will feature a 43,000 sq m, temperature-controlled Grade A warehouse; more than 3,000 sq m of offices and staff amenities; 5,300 sq m dedicated to chemicals storage; and an open yard covering about 1.2 million sq m.

    Asmo signed an agreement with Bahrain‑headquartered Arcapita Group Holdings in February to deliver the project at Spark.

    Planned for large-scale industrial use, the site is expected to incorporate advanced warehouse and building management systems, end-to-end digital connectivity, automation and robotics.

    It will also be developed in line with internationally recognised sustainability standards, featuring solar photovoltaic readiness, electric-vehicle charging infrastructure and a target of Leed Gold certification.

    The development aims to support the next stage of Saudi Arabia’s logistics and supply chain expansion.

    Under the deal structure, Arcapita will provide funding and retain ownership of the asset, while Asmo will develop the facility and then lease and operate it under a 22-year occupational lease.

    According to a statement, “the scheme will be executed via a forward-funding model, underscoring a long-term commitment to national infrastructure”.

    Asmo added that this will be its first purpose-built logistics centre and one of four strategic locations planned to anchor its nationwide logistics network, aligned with the National Transport and Logistics Strategy under Saudi Vision 2030.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21267403/main.gif
    Yasir Iqbal