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
  • Kuwait tenders major infrastructure packages

    23 March 2026

     

    Kuwait’s Ministry of Public Works (MPW) has tendered several contracts for infrastructure works across various parts of the country.

    The first tender covers the construction of rainwater drainage systems in the Sabah Al-Ahmad South, Sabah Al-Ahmad, Al-Khairan and Al-Wafra residential areas.

    The second tender includes the construction of a treated water system in Kuwait’s southern region.

    The third tender covers the construction of a treated water system in Kuwait’s northern region.

    The final tender covers the construction of roads, bridges, stormwater drainage, sewage and other services for a section of the Kabd-Sulaibiya Road, as well as a section of the Kabd-Sulaibiya industrial road link.

    MPW issued all of these tenders on 22 March, with a bid submission deadline of 21 April.

    UK analytics firm GlobalData expects Kuwait’s construction industry to grow by 5.1% in 2026-29, supported by government investment in the oil and gas sector aimed at raising production, as well as investment in the infrastructure sector.

    In the short term, growth will be boosted by planned expenditure under the 2025-26 budget, which was approved in March 2025.

    The construction industry in Kuwait is expected to record an annual average growth rate of 4.9% in 2026-29, supported by investments in renewable energy, transport, and oil and gas projects.

    The commercial construction sector is expected to grow by 4.8% in 2026-29, supported by public and private sector investment in the construction of hotels, retail outlets and office buildings.

    READ THE MARCH 2026 MEED BUSINESS REVIEW – click here to view PDF

    Riyadh urges private sector to take greater role; Chemical players look to spend rationally; Economic uptick lends confidence to Cairo’s reforms.

    Distributed to senior decision-makers in the region and around the world, the March 2026 edition of MEED Business Review includes:
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16083252/main.jpg
    Yasir Iqbal
  • Qiddiya tenders new infrastructure package

    23 March 2026

     

    Saudi Arabian gigaproject developer Qiddiya Investment Company (QIC) has tendered a contract inviting firms to bid for new infrastructure works in Qiddiya Entertainment City.

    The scope covers two infrastructure development packages in District 0 of Qiddiya Entertainment City, including the construction of four event park-and-ride facilities.

    The tender was issued on 11 March, with a bid submission deadline of 22 April.

    Lebanese firm Dar Al-Handasah and Saudi-based Sets International are serving as project consultants.

    QIC is accelerating plans to develop additional assets at Qiddiya City. Earlier this month, the company set a 16 April deadline for firms to submit prequalification statements for the Qiddiya high-speed rail project in Riyadh.

    Previously, MEED reported that QIC had received bids from contractors on 23 February for a SR980m ($261m) contract covering the construction of staff accommodation at Qiddiya Entertainment City.

    The project will cover an area of more than 105,000 square metres (sq m).

    Last month, QIC started the main construction works on its performing arts centre at Qiddiya Entertainment City.

    The Qiddiya City performing arts centre is one of several major projects within the greater Qiddiya development. Other projects include an e-games arena, Prince Mohammed Bin Salman Stadium, a motorsports track, the Dragon Ball and Six Flags theme parks, and Aquarabia.

    In December last year, QIC officially opened the Six Flags theme park to the public.

    The theme park covers an area of 320,000 sq m and features 28 rides and attractions, 10 of which are thrill rides and 18 designed for families and young children.

    The Qiddiya project is a key part of Riyadh’s strategy to boost leisure tourism in the kingdom. According to UK analytics firm GlobalData, leisure tourism in Saudi Arabia has experienced significant growth in recent years.

    The kingdom’s tourism sector posted record-breaking numbers last year, with over 130 million domestic and international visitors entering the kingdom, representing a 6% increase over 2024.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16083013/main.jpg
    Yasir Iqbal
  • Iraq declares force majeure on foreign-operated oil fields

    23 March 2026

    Register for MEED’s 14-day trial access 

    Iraq has declared force majeure on all oil fields developed by foreign oil companies as the US and Israel’s war with Iran disrupts navigation through the Strait of Hormuz.

    The initial attack and Iran’s response have slashed Iraq’s exports.

    Prior to the war starting on 28 February, Iraq was exporting between 3.3 and 3.5 million barrels a day of crude oil.

    Oil sales account for nearly 90% of Iraq’s government revenues.

    Earlier this month, two drone strikes hit infrastructure at Iraq’s Majnoon oil field, increasing security concerns in the country’s energy sector.

    One of the drones hit a communications tower, and the other hit the office of the US engineering company KBR.

    There were no casualties as a result of the attacks.

    Foreign workers were evacuated from the site days after the US and Israel’s war with Iran started, and only Iraqi staff are currently working at the site.

    Shortly before the war started, KBR announced that it had been awarded a “major contract” by Iraq’s state-owned Basra Oil Company to provide integrated field management services for the Majnoon oil field.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16067302/main.png
    Wil Crisp
  • Libya redirects oil after fire at Sharara field

    23 March 2026

    Libya’s state-owned National Oil Corporation (NOC) has redirected flows from the Sharara oil field after a fire broke out, according to a statement.

    NOC said that alternative pipelines have been used and production remains stable.

    It also said there were no casualties as a result of the fire.

    Some oil was redirected using the El-Feel oil field pipeline to the port of Mellitah, while remaining volumes were diverted ​through the Hamada pipeline to storage tanks in Zawiya.

    ​NOC said the diverted flows would “significantly reduce losses”.

    Libya’s crude production averaged 1.37 million barrels a day in 2025, its highest level in more than a decade.

    Oil generates more than 90% of the government's revenues, and the North African country has an estimated 48-50 billion barrels of proven reserves.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16034164/main.png
    Wil Crisp
  • Oman tenders Sadaf 400kV grid station project

    23 March 2026

    Oman Electricity Transmission Company (OETC) has opened bidding for a contract to build the Sadaf 400kV grid station and associated transmission infrastructure in Al-Wusta governorate.

    The tender covers the development of a 400kV grid station and a line-in-line-out connection between the Suwaihat and Duqm Industrial grid stations. 

    The scope of work includes the design, procurement, construction, installation, testing and commissioning of the project on a turnkey engineering, procurement and construction basis. 

    Contractors are required to have completed at least two 400kV grid station projects of similar scope within the past 10 years. 

    The project includes installing a substation control system to enable local and remote monitoring and control of power equipment, including switchgear, transformers and protection systems. 

    The project forms part of efforts to strengthen transmission infrastructure in Al-Wusta and support growing demand linked to industrial developments in Duqm.

    Oman has advanced procurement on several substation projects recently as part of efforts to strengthen transmission infrastructure across the sultanate.

    In February, OETC awarded India’s Larsen & Toubro a contract to build the $100m Majan 400/220/132kV grid station.

    OETC also recently appointed Oman National Engineering & Investment Company as the main contractor for the construction of a 132/33kV grid station at Sultan Haitham City.

    The utility is also seeking consultants for two design-and-supervision contracts for the Wadi Al-Ayn 132/33kV Grid Station and the Batinah 400kV Switching Station in North Al-Sharqiyah and Al-Batinah Governorates, respectively.

    The bid submission deadline for these tenders is 24 March.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16030653/main4547.jpg
    Mark Dowdall