Letter from our Chief Economist

US-MENA: Biden cannot delay decline and disengagement


October 23rd, 2020


With the US presidential election less than two weeks away, our latest publication Issue #129 analyses the implications of the results on US foreign policy towards MENA. During his first term, President Donald Trump has made radical moves in the region via his "deal f the century" and by pursuing a strategy of "maximum pressure on Iran, including through its regional acolytes. Should Trump win re-election, we expect his administration to continue in its attempt to size down Iran’s regional influence via pressure on the regime and economy. But even if he is defeated, Donald Trump’s policies will remain in force during the ‘lame duck’ window before a new administration is sworn in on January 20. Policy decisions made during this timeframe might not be easily undone under a Biden administration. 


There is no standard script for what might follow if Trump refused to concede. We, however do not rule out his liberal use of executive orders to effect foreign policy, which would probably be targeted at Iran. Meanwhile, a White House led by Democrat Joe Biden could bring back elements of foreign policy we saw during the Obama administration, including US disengagement. We discuss Biden’s foreign policy goals towards Iran and the rest of the region, and the implications of his decisions on the  Israeli-centric goals we witnessed under Trump. Given that Biden made re-joining the JCPOA an integral part of his campaign platform, we expect the potential return of Iran to global oil markets to result in an oil glut.


While the unfolding geopolitical power play is likely to prolong instability, there is room for US-MENA trade to expand. Despite global trade slowing down due to the pandemic, the new regional normalisation accords could pave the way for new trade markets for the region with the US. We are already witnessing talks around the potential sale of US defence aircraft to the UAE. However, with US military presence retreating and bilateral relations with regional players redefined, the stage is set for MENA to continue its pivot eastward toward Asia, with China becoming a central new player in the region. 


Interested to learn more about our analysis on the US election and its impact on the MENA region? Please reach to our analyst team to discuss and gain access to the full publication, at info@arabiamonitor.com


The MENA Green Finance Frontier


October 9th, 2020


With lower for longer oil prices and production, oil-dependent economies in MENA are accelerating the transition to renewable energy, driving environmental policies along at the same time. The green finance sector in the region, while still in its infancy, provides unexplored business opportunities for both public and private investors, particularly as economic diversification becomes ever more urgent.


The surge in demand for clean energy and the growing investments in the pipeline are propelling governments to push for green financing regulatory frameworks. This is designed to position the region at the forefront of the green market.  Green financing commitments in MENA account for only 1% (around USD 2B) of the global share, which is around USD 31T. This is however changing. Both renewable energy capacity in MENA and government participation in the provision of sustainable financing have been rapidly growing, doubling over the past 10 years to 40GW and set to reach 80GW by 2024. Green investments are expected to grow by 18 times from current levels, to reach USD 180B in the next five years.


Sukuks are taking on a new shade of green across the region -- which given the demand for sharia-compliant vehicles suggests large potential. Sovereign debt issuance in the region has been growing, particularly since the onset of the pandemic as governments seek to deep capital markets and fund mounting deficits. Expansion is likely to continue on an upward trend in the next few quarters as the green sukuk market provides a new frontier. In our Regional View Issue #127 we highlight the potential of the green sukuk market in creating attractive opportunities for private investor participation. We particularly expect to see an increase in the flow of investments from overseas into the region’s green start-ups.


Interested to learn more about our analysis on green finance and its untapped potential in the region? Please reach to our analyst team to discuss and gain access to the full publication, at info@arabiamonitor.com


green finance

GCC Banking & Finance: Ushering in the age of the consumer


October 2nd, 2020


As global growth grapples with the dual challenge of suboptimal oil prices and the impact of COVID-19, our regional theme this quarter looks at the banking and finance industry in the GCC, and how it is having to adjust via digitalisation and accelerating disruptive innovation. Stimulus measures implemented by central banks across the Gulf dwarf any previous support. The easing of capital requirements and prudential liquidity measures have to some degree absorbed the hit, which in turn is allowing the sector to navigate through these short-term uncertainties.
While the focus across the banking and finance sector is now shifting more to preserving asset quality than stimulating new business activity, we think the economic cycle has started to turn in some areas. For now, growth across the sector will hover around the single-digits range particularly as lending growth across conventional and Islamic banks is enduring the slowdown on the back of lower oil prices, subdued spending and geopolitical risk. This will hold back overall growth in the sector this year. Going forward, we expect to see growth fuelled by the acceleration of investments in digital infrastructure as the financial sector absorbs the shift in consumer demand.
Appetite across investment banking activity in the GCC is expected to remain robust, as external headwinds have prompted a strong wave of M&A and debt issuance. Sovereign sukuk issuance is getting a boost this year, and we expect it to continue to expand in the next few quarters, helping deepen capital markets as mounting deficits are funded.

While the region was already experiencing an acceleration in e-commerce and fintech activity prior to COVID-19, the rapid expansion in mobile banking and digital branch opportunities brought on by the pandemic and lockdowns now present a new frontier. We expect vast improvements in the fintech regulatory framework across the GCC to favour growth in open banking, including the entry of new investors. The UAE-Bahrain-Israel peace deal could usher in unexplored business opportunities in this sector.
For our Q4 MENA Outlook, we also analyse how MENA countries are adjusting to the prospect of oil prices lower for longer. Past bouts of belt-tightening tended to rely on a rapid rebound in oil prices to refill state coffers, this time the risks are greater as a gloomy demand outlook makes an oil market recovery unlikely this year. We also analyse the economic impact of the pandemic on sectors such as tourism and give our view on the potential for recovery as lockdown measures ease. The rebound from the pandemic-induced contraction, combined with the deep deficit spending, will not come easily across the board — we see some GCC countries undergoing a U-shaped, wide-bottomed recovery.
On the geopolitical front, with traditional international players that normally come to the rescue preoccupied, some countries in the region could continue to drift sideways; in the very least, the road to political and security stability could be longer this time around, especially in places like Libya, Lebanon, Syria and Yemen and Sudan. But we do see progress on the Qatar-Quartet spat, in connection with the normalisation initiatives.


To gain access to the full publication and/or to discuss further with our analyst team, contact us at info@arabiamonitor.com

Fiscal balance

MENA Real Estate: Demand builds up


September 25th, 2020 


On the back of low oil prices and the coronavirus pandemic, growth across the region is expected to be slow and anaemic. The IMF expects MENA real GDP to contract by 5.7% this year from a lacklustre growth of 0.3% in 2019. The outlook for the real estate market, which has proven integral for recovery in the past, nonetheless has been improving in some areas. This is mainly because business activity has started to see improvements as lockdowns have eased and stimulus packages have kicked in. We are monitoring this closely to determine whether this is just a rebound from a low base, or a robust new growth path.

Despite earlier fluctuations and the effects of the pandemic, real estate is expected to make a comeback by the end of the year for some countries in the region. Recovery, however, across the sector will be unbalanced as we witness the shift in consumer preference towards online shopping and a working-from-home economy. We explore this in our Regional View Issue #125.


In the UAE, the real estate market, which has been fighting sluggish conditions even before COVID, is set for a long climb back. In the residential market, though transaction activity has certainly slowed, the depth of the contraction has been relatively limited considering the severity of lockdown measures. Demand for mortgages in recent months has risen, reaching over USD 3B in July-- three times higher than the same period in 2019.


We expect the mismatch in supply and demand across the UAE to be narrowed, mainly through the housing market. Sale prices for residential properties have declined presenting an unparalleled opportunity for investing. With our expectations that prices will soften further till end of year, and if the working-from-home economy continues, demand is expected to be further boosted, with trends shifting towards larger properties. Endorsed by the UAE authorities enacting favourable legislation and providing more flexibility, the fundamentals underpinning demand for residential property are expected to be strong.


In Egypt, demand for residential properties is picking up, mainly on the back of strong market fundamentals, growing young population and the actions by the Central Bank of Egypt (CBE), mainly the decision to keep interest rates unchanged. The residential market has performed comparatively well on an annual basis as Q2 saw the completion of one residential project. The housing market in Egypt could well embark on a new and potentially sustainable growth path for the overall real estate sector as consumers grasp the opportunity of lower property prices and mortgage rates. We expect transactions will continue to grow and be more apparent by the end of Q4.


Interested to learn more about our analysis on real estate in the MENA region? Please reach to our analyst team to discuss and gain access to the full publication, at info@arabiamonitor.com

Real Estate

Turning sandy-deserts green


September 18th, 2020


The MENA region continues to suffer from the world’s most acute water shortages. This, along with its fast-growing population has increased the reliance on food imports. The Global Network Against Food Crisis, an alliance of UN and partner agencies, forecasts that COVID-19 may lead to over 265 million people suffering from a food crisis. While we do not expect such insecurity to hit the MENA region this year, the high dependence on food imports due to the region’s environmental challenges, along with decades of conflict and negligence, suggests the region may be vulnerable to a food crisis in the long-term. This needs to change ; a government-driven change in the mix of agriculture is needed.


The agriculture sector in MENA contributes a relatively small share of the region’s total GDP, accounting for around 11% in 2018, albeit taking up 26.8% of the total labour market. In our Regional View Issue #121 we analyse the region’s large food import bill and discuss the alternative options that can be accelerated by governments. The high import dependence does not necessarily translate into food insecurity, but the region is highly vulnerable to supply shocks, mainly given its proclivity for political unrest and, currently, the COVID-19 pandemic. The lack of modern irrigation techniques also makes agriculture a major contributor to water scarcity. At around 87% of what is available, agriculture in MENA consumes more water than the 70% global average.


Using Qatar as a case study, which has been pushed by the boycott to self-sustain its agriculture sector, we find the use of agriculture technology or agritech is critical for the region. In recent years, we have seen across the region mainly in the GCC, Jordan, Morocco and Egypt the increase in the use of advanced technologies in farming. We expect further efforts to be directed to this new sector, with others joining the space. After all, it is needed now more than ever.


We do not forecast a food crisis in the region, at least anytime soon, the current situation requires a new approach to thinking - one that is sustainable and regionally appropriate and scalable.


To gain access to the full publication and/or would like to discuss further, contact us at info@arabiamonitor.com

MENA agriculture