MENA-Turkey: The love-hate relationship endures
MENA Outlook Quarterly
On the back of riveting recent developments, yet growing opportunities between the MENA region and Turkey, we decided to focus our Q1 2019 MENA Outlook on this relationship. In today's quarterly we highlight the economic inroads Turkey has been making into MENA since 2002, while also highlight recent rifts between the two sides.
Turkey has differed with many of its MENA partners on policies regarding Syria, Russia, Iran, Qatar and the Muslim Brotherhood, and, most recently, the Khashoggi debacle has had direct and indirect impact as we approach 2019 with a US decision to exit Syria, in yet another volte-face. We see a number of key issues ahead. Though there have been tensions with Saudi Arabia, it is important to remember that the two countries had been broadly aligned on Syria, and that they have traditionally managed to avoid public spats. We expect the current scuffle to dissipate over 2019.
GCC countries are the third largest source of foreign direct investment (FDI) into Turkey, after Britain and the Netherlands. On average, over the last ten years, the proportion of FDI from the GCC made up 80% of total MENA inflows into Turkey. Although Turkey can ill afford to abandon its EU economic orbit, but it will scale-up exports to more rapidly growing markets. MENA countries, with an aggregate population of close to 400 million, are attractive to a country that needs to export more. Turkey also offers large trade opportunities that benefit MENA suppliers such as the UAE and Bahrain, which are major aluminium exporters. The growing number of tourists from MENA, especially from the GCC, are of further appeal. Meanwhile, it is looking to broaden Arab investment inflows beyond real estate, so we point to hospitality, retail, agriculture and banking as channels to tap into long-term Turkish growth, especially given the weakened lira versus GCC currencies.
The IMF’s November Regional Economic Outlook for the MENA region projected GCC growth to recover by 2.4% this year and to rise by a further 3% in 2019, compared with a contraction of 0.4% in 2017. It assumes minimal direct impact from any global trade wars but notes that the region could be affected by lower growth in its key economic partners, a slowdown in global growth as well as worsening emerging market sentiment.
In the UAE, GDP growth is projected to rise from 0.8% in 2017 to 2.9% in 2018 and 3.7% in 2019. Meanwhile the Saudi economy is expected to grow by 2.2% in 2018 and 2.4% in 2019 from a contraction of 0.9% in 2017. GDP growth in Bahrain, Kuwait, Oman and Qatar are projected at 2.6%, 4.1%, 5% and 2.8% respectively next year. Reflecting the expected impact of re-imposed sanctions on Iran, growth in non-GCC oil exporters (such as Iraq) is projected to slow to 0.3% in 2018, down from 3% in 2017, and to pick up modestly to 0.9% in 2019. Renewed sanctions are set to reduce Iranian oil production and exports significantly over the next two years at least.
Growth in regional oil-exporting countries troubled by internal conflict has been mixed. While Libya’s growth has been strong in 2017 and 2018, primarily driven by increased oil production, activity in Yemen contracted further. The outlook for these countries is expected to improve if the conflicts subside, so we are carefully monitoring the encouraging peace initiative underway for Yemen and hoping for better momentum in Libya.
Political events to watch for in 2019 will be Algeria's preparations for new elections that appear to once again field Bouteflika, Lebanon's cabinet formation travails as ratings pressure emerges, Iraq's cabinet formation as public service provision continues to suffer, and Saudi Arabia's critical redoubling of efforts to reinforce the economic and political initiatives of the Crown Prince, to keep reform forging ahead. How the Iranian regime absorbs domestic and international pressure will also be crucial to observe.
In the meantime, we expect the unfolding new silk route to continue to hum along unperturbed, virtually inexorably, via the Belt and Road Initiative (BRI). We are expanding our presence in China through 4 additional analysts on the ground. We have also inaugurated coverage of Somalia and Djibouti, countries that are part of both the Arab and BRI maps.
While we couldn’t start to predict what the MENA region will bring in 2019, just as some of the events of 2018 were impossible to even imagine, we know there won't be a single boring moment ahead!
We wish you all a happy holiday and a brilliant 2019.
Florence Eid-Oakden, Ph.D, Chief Economist
Charlene Rahall, Robin Mills, Roa Ibrahim, Mingqiao Zhao & Chafic Mouharam, Analysts
The MENA Outlook publication presents Arabia Monitor’s insights on global markets, outlines and analyses regional future trends and defining themes, and then focuses on individual country macroeconomic views. Each publication is laid out in a concise bullet point format and features a Special Feature interview with regional leaders including central bank governors, ministers and executives.
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