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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.”

 

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James Gavin

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    26 June 2026

     

    The Iranian drone strike on Kuwait International airport on 3 June was a reminder of the severity of the threat that Gulf aviation has faced. The attack caused significant structural damage to Terminal 1 and wounded several individuals. It was the third drone strike on the hub in recent months.

    Kuwait has not been alone. After the conflict erupted on 28 February, Iranian strikes targeted some of the region’s most important aviation infrastructure. Dubai International airport, Zayed International airport in Abu Dhabi and Hamad International airport in Doha have all been hit. The attacks caused unprecedented disruption: between 28 February and 5 March alone, more than 15,000 flights were cancelled across seven major regional airports, affecting over 1.5 million passengers. 

    Although the Gulf’s national carriers have resumed services, many international airlines have yet to return.

    Aviation is crucial for the region. The sector is one of the most important drivers of economic growth across the GCC. In Dubai, it contributed an estimated AED137bn ($37bn), or 27% of GDP, in 2024 and supported 631,000 jobs. Those figures are expected to rise to AED196bn and 816,000 jobs by 2030. In Saudi Arabia, Vision 2030 targets 330 million annual passengers, connectivity to more than 250 destinations and air freight capacity of 4.5 million tonnes a year. The sector’s economic contribution is targeted to reach $74.6bn by 2030, up from $21.3bn.

    Sector deteriorating

    The financial community has been quick to update its assessment of the sector’s prospects. Fitch Ratings revised its global airport sector outlook from ‘neutral’ to ‘deteriorating’ in early June. The agency said the conflict has increased uncertainty over regional airspace availability, airline operations and travel demand, with implications for route stability and traffic quality.

    Fitch’s assessment is a warning sign for the Gulf. The region’s major airports have built their business models on international connectivity, long-haul flying and transfer traffic – precisely the categories Fitch identifies as most exposed to rerouting risk and weaker visibility on demand. Gulf hub operators also face the prospect of further airspace restrictions affecting routes linking Asia, Europe and Africa.

    The knock-on effects extend beyond airline revenues. Transfer passengers are also the highest-spending travellers in duty-free, retail and food and beverage outlets. Fitch noted that some Asia-Pacific airports have already begun benefiting from the redistribution of transit and long-haul traffic away from disrupted Gulf hubs.

    The global body representing airlines, the International Air Transport Association (Iata), was equally downbeat when it released its latest financial outlook on 8 June. The organisation now expects the global airline industry to achieve a combined net profit of $23bn in 2026 – roughly half the $41bn previously projected and about half the $45bn estimated for 2025. The net profit margin is forecast at 2%, compared with the earlier projection of 3.9% and last year’s 4.2%. Net profit per passenger is expected to be $4.50, down from $9.10 in 2025.

    “War-related disruptions in the Middle East and rising fuel costs have shifted the outlook for airlines to the worse,” said Willie Walsh, Iata’s director general. “At the regional level, all are in the black but with sharply reduced financial performance, with the exception of the Middle East. The Gulf carriers face operational uncertainty following a near complete shutdown of airspace at the outbreak of the war. These carriers are doing an amazing job maintaining connectivity, but major financial impacts are unavoidable.”

    Fuel costs are a key part of the problem. Jet fuel prices are expected to average $152 a barrel for the year – an increase of almost 70% on the $90-a-barrel average recorded in 2025. The crack spread, or the premium for jet fuel over Brent crude oil, is expected to average $57 a barrel, an historic high. Total fuel costs for the global airline industry are forecast to rise by nearly 40% from $252bn in 2025 to $350bn in 2026. This is based on an expected average Brent crude oil price of $95 a barrel for the year, up 37% from $69 in 2025. Overall, industry operating expenses are expected to grow by 13% to $1.117tn, outpacing total revenue growth of 9.4% to $1.165tn.

    Fitch also raised concerns about the availability of jet fuel in Europe, noting potential disruption to Middle Eastern supply chains. While the agency expects European fuel reserves to cover the summer months even if the Strait of Hormuz remains effectively closed, it cautioned that winter operations could prove more challenging if the disruption persists. Higher airfares and fuel surcharges could further weigh on near-term demand – a headwind for Gulf airports that have benefited in recent years from the restoration of long-haul leisure travel following the Covid-19 pandemic.

    The insurance market adds another layer of complexity. Aviation policies typically grant insurers the right to cancel cover during active conflict, and the terms on which cover is being extended in a region that has seen airports repeatedly targeted are likely to be materially more expensive than before.

    Jet fuel prices are expected to average $152 a barrel for the year – an increase of almost 70% on the $90-a-barrel average recorded in 2025

    Carrier optimism

    The Gulf’s airlines are more optimistic about the future. Abu Dhabi’s Etihad Airways said in early June that it is operating at 90% of its pre-war available seat kilometres – the key industry capacity metric – and that by 15 June the airline will surpass 100%. Planes are 84% full, and crucially, fares are back at pre-war levels. Officials at the airline say that demand for transit through Abu Dhabi from Paris to Asia is running so strongly that the airline is laying on two of its A380 aircraft a day on that corridor from July. 

    While the expectation in the industry outside the Gulf had been that carriers such as Etihad and Emirates would need to discount heavily to entice passengers back after the ceasefire, Etihad has said that it does not expect prices to come down.

    The airline will not be entirely unscathed. Etihad had been on course to deliver a 10% operating margin in 2026, up from 8% in 2025, but that target will now be missed. The airline was badly hit in March, April and May and will not be fully back on track until August.

    Dubai’s Emirates Group released its 2025-26 annual results in May, which confirmed the airline’s status as the world’s most profitable carrier for the reporting year. The group posted a record profit before tax of AED24.4bn ($6.6bn), up 7% year-on-year, on revenues of AED150.5bn, also a record. 

    Unprecedented situation

    The context is important: the results cover the financial year to 31 March 2026, meaning only the final month of March was affected by the conflict. For the first 11 months, the group was surpassing its targets every month. March then brought what Emirates’ chairman and chief executive Sheikh Ahmed Bin Saeed Al-Maktoum described as an “unprecedented situation”. Emirates was flying just 58% of its capacity by 31 March.

    Despite the disruption, the results illustrate the depth of the financial cushion the group has built. Emirates also announced a 20-week salary bonus for employees – far exceeding the 13-week payout that had been linked to performance targets. For the year ahead, Sheikh Ahmed said Emirates would continue taking aircraft deliveries and pressing ahead with its retrofit programme, without resorting to “knee-jerk cost control measures”. The group has hedged its fuel exposure through to 2028-29. “Our fundamentals are strong,” he said.

    On 8 June, Riyadh Air – the airline backed by Saudi Arabia’s Public Investment Fund – announced five new destinations: Cairo, Dubai, Jeddah, Madrid and Manchester, coinciding with the arrival of its first three Boeing 787-9 Dreamliner aircraft. The airline also moved up its inaugural London flight from 1 July to 10 June. 

    The airline will play a key role in delivering Saudi Arabia’s ambition to develop Riyadh into a global aviation hub and to position the kingdom as a major connecting point between East and West. The carrier has set a target of connecting Riyadh to more than 100 destinations worldwide by 2030. Pressing ahead with new routes and aircraft deliveries amid regional turbulence sends a signal that Saudi Arabia’s aviation ambitions are not for deferral.

    Future direction

    Looking ahead, there appears to be diverging fortunes for the sector. Globally, analysts say point-to-point leisure airports are typically better positioned than large hubs reliant on transfer traffic and international corridors, and this may also play out across the Middle East. Airports with a large share of local origin-and-destination demand may prove better insulated compared with the major connecting hubs whose business models depend on stable long-haul routings. 

    For the Gulf’s flagship hub carriers, including Emirates, Etihad and Qatar Airways, state ownership and strong backing mean that the question is less about survival and more about how long it will take to restore the full confidence of international airlines and their passengers. 

    Much remains uncertain. A ceasefire is in place and, as Sheikh Ahmed noted in the Emirates annual report, there are hopes for “a clear resolution to the hostilities soon, and a return to market stability”. But the drone attack on Kuwait shows that the threat from Iran to the region’s aviation infrastructure has not been neutralised. The coming months will be crucial in determining the long-term trajectory of Gulf aviation. 

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  • Kuwait prepares to retender fuel depot project

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  • Etihad Rail to begin passenger rail operations from 30 June

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    Abu Dhabi’s Etihad Rail is set to begin passenger rail operations on 30 June 2026, launching an introductory operational phase on the Abu Dhabi-Fujairah route. Tickets are already on sale through the operator’s digital platforms.

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    The launch comes less than five years after the UAE announced its ambition to create a national passenger railway under the country’s “Projects of the 50” programme, which aims to support economic diversification and sustainable development.

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    Customers can book tickets up to four weeks before travel. Tickets for new destinations will be released in line with the phased roll-out.

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    For the initial Abu Dhabi–Fujairah service starting 30 June, Etihad Rail said fares will start from AED55 for Comfort class and AED120 for Premium class. The operator added that future fares and routes will be announced separately.

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    • Premium: wider reclining seats, extra legroom and complimentary refreshments

    Within each class, passengers can choose from three fare types based on flexibility:

    • Saver: lowest fare for fixed plans; available only via the app, booking website and contact centre
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    • Flex: includes seat selection, ticket changes and refunds

    Etihad Rail said introductory fares are designed to encourage early uptake and will be available for a limited period, with pricing expected to transition “towards a more advanced fare structure and, ultimately, a broader fare framework” as the service matures.

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    The journey times are as follows:

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    • Abu Dhabi to Dubai: 57 minutes
    • Dubai to Fujairah: 69 minutes

    Train features include generous legroom, Wi‑Fi, power at every seat, foldable tray tables, overhead storage, space for larger baggage and accessibility provisions. Station features include clear signage, comfortable waiting areas, staff assistance, accessibility features and parking.

    Etihad Rail said the onboard experience is designed around “comfort and time well spent”, enabling passengers to work, relax or switch off in a “calm and spacious environment” with guaranteed seating, Wi‑Fi and charging points.

    Etihad Rail’s network currently supports freight operations across 11 terminals and four major ports, underpinning supply chain efficiency, emissions reduction and national connectivity.

    The company also pointed to the broader economic value of the UAE Railway Programme, stating that it creates opportunities worth AED200bn, while passenger rail is expected to generate around AED91bn in economic and social benefits over the next 50 years, driven by faster, safer and more efficient travel.

    Etihad Rail also differentiated the new passenger service from the UAE’s future high-speed rail plans, saying passenger rail is intended to connect more communities across the country with an affordable and comfortable service, while high-speed rail is being designed for “very fast journeys between central points of our major cities”, describing the two as “different products and services designed for different types of journeys”.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17448681/main.jpeg
    Yasir Iqbal