Q4 2012 MENA Outlook - Shifting Sands, Shifting Trade: Building a new Silk Route
Arabia Monitor, September 2012, Pages: 81
The MENA Outlook is a comprehensive publication covering macroeconomic, market and geopolitical analysis of the MENA region, laid out in a concise bullet point format. The publication presents Arabia Monitor's insights on global markets, moves on to cover regional issues, and then focuses on individual country macroeconomic studies. Each publication features a special interview with regional leaders including central bank governors, ministers and executives.
The Q4 2012 MENA Outlook focuses on the growing links between MENA and China, two economies now joined at the hip by hydrocarbon-linked trade and investment. China is importing a greater share of its oil from MENA, while MENA is exporting a greater share of its oil to China, a pattern we expect to persist as growth continues to shift eastward. This trend is only a resumption of a centuries-old interdependence: The Silk Route is being re-established rather than invented.
ABOUT THE AUTHORS
The analysis is based on the macroeconomic and financial balance sheet of Arab countries delivering unique strategy insights and forecasts to businesses across a wide range of sectors.
The team is led by Dr Florence Eid, formerly VP & Senior Economist for MENA at JP Morgan, and has worked with the World Bank on Latin American and North Africa. Dr. Eid sits on the Board of Directors for the Arab Banking Corporation International Bank in London and on the Advisory Board of QFinance. She is a Patron of the Contemporary Arts Society in London and holds a Ph.D. in Organization Economics from the Massachusetts Institute of Technology (MIT).
Our view: Opportunity beckons as the Silk Route re-emerges 6
Global Outlook - Austerity, the siren song despite persistent output gaps 7
Global Outlook - Developed world gross financings remain elevated 8
Global Outlook - U.S.: Fiscal cliff event equivalent to ratings downgrade 9
Global Outlook - U.S.: Political uncertainty will keep corporates cautious 10
Global Outlook - U.S.: A democratic President's rationale for tax increases 11
Global Outlook - U.S.: Marginal tax rates likely to increase 12
Global Outlook - Financial Repression: A look at historical periods 13
Global Outlook - Financial Repression: Key to reducing stock of debt 14
Global Outlook - 1990s balance of payment crises offer no easy answers 15
Global Outlook - During crises, expectations are often overly optimistic 16
Global Outlook - Japan: Recency bias in the form of low volatility should not lull investors- 17
Global Outlook - - because hyperinflation is a fiscal phenomenon 18
Global Outlook - Japan: The Imperial Accord* 19
Global Outlook - Crude: The perfect storm cometh 20
Global Outlook - Crude: Lower global growth prospects mask OPEC's falling spare capacity 21
Global Outlook - Crude: Geopolitics rather than growth take center stage 22
MENA Region: GCC emerges as regional stabilizer, not unlike the U.S. in 1948 23
MENA Region: Strong fundamentals, especially post-'08 24
MENA Region: MENA trade growth set to outpace global trade growth as the West deleverages 25
MENA Region - The New Silk Route: Feeding a billion mouths through trade 26
MENA Region - The New Silk Route: As China looks to tackle food security, further synergies with MENA emerge 27
MENA Region - The New Silk Route: Chinese investment, an engine of future industrial growth in MENA 28
MENA Region - The New Silk Route: As crude exporter & manufacturing importer, MENA grows in trade importance 29
MENA Region - The New Silk Route: MENA and China: Joined at the hip 30
MENA Region - The New Silk Route: China in surplus with MENA oil importers, in deficit with exporters 31
MENA Region - The New Silk Route: Trade growth to surge in North Africa, Egypt in particular 32
MENA Region - The New Silk Route: A small investment for China- 33
MENA Region - The New Silk Route: - but a sizeable effect on MENA 34
MENA Region - The New Silk Route: Looking beyond oil 35
MENA Region - The New Silk Route: The agriculture opportunity 36
MENA Credit & FX Monitor: Macro Themes - Sovereign Credit 37
MENA Credit & FX Monitor: Macro Themes - Sovereign FX 38
MENA Credit Strategy: Outright CDS & FX analysis 39
MENA Credit Strategy: Outright CDS analysis 40
MENA Credit Strategy: Relative value CDS analysis 41
MENA Credit Strategy: Relative value CDS analysis 42
MENA Credit Strategy: Relative value CDS analysis 43
MENA Credit Strategy: Relative value CDS analysis 44
Arabia Credit Monitor: 5-yr CDS vs. Credit Ratings 45
Arabia Credit Monitor: CDS Spread Analysis 46
Arabia Credit Monitor: Credit ratings 47
MENA Credit Analysis: Arabia Credit Monitor 48
Arabia FX Monitor: FX Levels Analysis 49
MENA FX Analysis: Arabia FX Monitor 50
Algeria: Economic dynamism on the back of elevated oil prices 51
Algeria: How to make the most of the Algerian opportunity 52
Bahrain: Gradual normalization 53
Egypt: Engines on as domestic demand and investment activity lead the way 54
Special Feature: Q&A with Dr Ziad Bahaa El Din
- Social spending is different from social justice 55
Special Feature: Q&A with Dr Ziad Bahaa El Din
- We must repeat the elections following the draft of a new constitution 56
Special Feature: Q&A with Dr Ziad Bahaa El Din
- Going through a political transition is no excuse for leaving the economy on a shelf 57
Iraq: Banking on non-oil potential to fuel economic growth 58
Jordan: Attempting to change, without rocking the boat 59
Kingdom of Saudi Arabia: Banking sector benefiting from robust economic activity 60
KSA: Mortgage law to facilitate homeownership 61
KSA: TASI - Growth at a reasonable price 62
KSA: TASI - Dividends key to long-term total return 63
KSA: TASI - The case for investing for the long-haul 64
KSA: TASI - Trading as a post-crash index, rather than an emerging economy 65
Kuwait: Political tensions overshadow economic outlook 66
Lebanon: Real economy losing steam, but damage could have been much worse 67
Libya: Long-term opportunity, short-term volatility 68
Mauritania: Macroeconomic stability, bolstered by aid 69
Morocco: Challenges for real economy, but moderate debt risk 70
Oman: Higher hydrocarbons output supportive of economic growth 71
Qatar: Leading regional growth despite weakening momentum 72
Sudan: Pressure could ease if talks, and political will, prevail 73
Syria: Economic costs skyrocket with resolution nowhere in sight 74
Tunisia: Emerging signs of a rebound? 75
UAE: Building Momentum and Sustaining It 76
West Bank & Gaza: Political hurdles on the bumpy road to sustainable growth 77
West Bank & Gaza: Private sector competitiveness, the long road ahead 78
Yemen: Security, economic and humanitarian challenges 79
GCC sovereign ratings update 80
MENA exc. GCC sovereign ratings update 81
PUBLICATION OVERVIEW
The MENA Outlook is a comprehensive publication presenting a macroeconomic, market and geopolitical analysis of all 18 markets in the MENA region, laid out in Arabia Monitor's unique, bullet point format.
As growing economic interconnection can affect global operations by geo-political and macroeconomic changes in MENA, even executives with no operations in the region can no longer afford not to keep abreast with the developments in this dynamic market.
Arabia Monitor's executive-friendly, independent coverage is conducted by Arabic speaking analysts with native expertise, benefitting from a local understanding of one of the world's most complex regions to present insights and projections on MENA economies and their implications on markets and investment prospects.
Independent, robust and timely, the MENA Outlook offers unique access to high-level policy makers, combined with bottom-up analysis, differentiating it from other research reports. By adopting a forward looking perspective the report places recent developments within a broader context and a long-term view, to help investors make informed decisions on how best to hedge risks and capitalize on opportunities in the MENA region.
Q4 2012 special feature:
Interview with Dr Ziad Bahaa el Din, Deputy Chairman of the Egyptian Social Democratic Party & Former Chairman of the Egyptian Financial Supervisory Authority
HIGHLIGHTS FROM THE REPORT
The Q4 2012 MENA Outlook focuses on the growing links between MENA and China, two economies now joined at the hip by hydrocarbon-linked trade and investment. China is importing a greater share of its oil from MENA, while MENA is exporting a greater share of its oil to China, a pattern we expect to persist as growth continues to shift eastward. This trend is only a resumption of a centuries-old interdependence: The Silk Route is being re-established rather than invented.
- China's food-import bill has grown seven-fold in the past decade, and the MENA region's main food exporters are set to capitalize on China's expected import needs. The volume of North African food exports to Europe, and the slowdown in EU demand, indicate that catering to the Chinese food market is a clear opportunity.
- It is likely, in our view, that Chinese industrial conglomerates (particularly in the automobile industry) will invest in the MENA region directly in order to reach this growing consumer market more easily, provided a re-calibration of tariffs to incentivize intra-regional clients is undertaken. Though this will still represent a small investment for China (MENA constitutes only 1.5% of Chinese total FDI outflows), the effect on MENA remains sizeable: Chinese FDI in MENA accounts for 3.5% of the region's GDP (2011). Typically, Chinese investors are more resilient to both political turmoil and the difficult business environment in the region, relative to their Western peers. While we do expect a protracted shift towards enhanced governance and transparency, Chinese investment into MENA is now more vital than ever in light of slowing global investment activity.
- The economic costs of Syria's crisis have skyrocketed, and given the current balance of power between regime forces and the Free Syrian Army, we attach a minimal probability to a resolution of the conflict over the coming quarter. Neighbouring Lebanon's real economy is losing steam owing to spill-over effects, despite compensating factors softening the blow. Palestine's economic model becomes increasingly unsustainable as funds dry up, and the resulting unrest could prompt Israel to take some measures in easing restrictions. With no progress made towards a Hamas-Fatah reconciliation, parliamentary elections seem to have been put on hold, a disappointing, yet unsurprising development. Jordan's strategic position within the region drives donors to disburse funds necessary to control its deficit and avoid public discontent. While the piecemeal approach to economic and political reform continues to be a source of frustration, we expect the opposition to remain on hold as stability is prioritized in the Kingdom. Initiatives by the Central Bank of Iraq are posed to strengthen the banking sector's fundamentals, leading us to adopt a constructive outlook on private sector growth, despite security challenges.
- In Egypt, increased political stability is paving the way for a revival in capital inflows, and we remain confident on the country's medium-long term economic prospects. Foreign support (by the GCC in particular) is likely to be maintained, providing a much needed floor to the country's finances.
- In the GCC, the levels of performance posted by banks in Saudi Arabia so far this year have been the highest since 2007, with trickle effects on the region (especially Bahrain). The UAE continues to experience positive externalities from regional instability, with encouraging results in tourism and real estate, while infrastructure investment emerges as an important driver of growth in Qatar, where diversification efforts continue ahead of the 2022 FIFA World Cup. We highlight the on-going political deadlock in Kuwait, further hampering the implementation of the country's National Development Plan. In Oman, the government continues to prioritize job-creation through public investment, and an estimated 35,000 new jobs are to be created in 2012.
- On-going security concerns have greatly affected investor confidence in Libya, but the new institutions (particularly the new government) have prioritized immediate security concerns and arms control, which is encouraging for the long-term. Meanwhile, tensions within the Tunisian government continue to negatively impact investor sentiment, with the economy suffering from the recession in Europe through the trade and investment channels, much like in Morocco, where the outlook is brighter due to strong policy measures. Algeria continues to post strong economic activity, on the back of a sustained period of elevated oil prices which have enabled the country to pursue with its public investment efforts while enjoying a comfortable external position. We highlight opportunities in Mauritania, which is set to record a pick-up in economic activity, particularly in the mining sector.
- Finally, our analysis reveals contrasting outlooks for the region's two main tail risks: Sudan and Yemen. As we had previously forecasted, the compounding of economic pressures and the loss of revenue on both sides of the border have led Sudan and South Sudan back to the negotiating table, this time resulting in what resembles a final oil-sharing agreement, which bodes well for Sudan's fiscal position starting H1 2013. Meanwhile, in Yemen, although donor assistance (particularly from Saudi Arabia) has helped alleviate pressures, the security outlook remains worrying, as illustrated by the recent attack on a gas pipeline feeding Yemen's only liquefied natural gas (LNG) export terminal.
- Algeria
- Bahrain
- Egypt
- Iraq
- Japan
- Jordan
- Kuwait
- Lebanon
- Libya
- Mauritania
- Morocco
- Oman
- Qatar
- Saudi Arabia
- Sudan
- Syria
- Tunisia
- United Arab Emirates
- United States
- West Bank & Gaza
- Yemen
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