Our quarterly regional theme analyses the performance of the automotive industry in the MENA region and its growth potential in different countries.
- GCC nations are some of the most rewarding markets in the MENA region for vehicle manufacturers, with high demand for luxury cars, sports cars and utility vehicles. We see potential for this demand to rise.
- Saudi Arabia and the UAE are the two largest car markets within the GCC. These markets present significant growth opportunities for electric vehicles and car accessories.
- Morocco’s auto industry has become the kingdom’s top exporter, leaping past agriculture, minerals and textiles to account for 24.4% of the total. With the government taking steps to boost the industry, and foreign automakers increasingly interested in opening plants, we expect significant growth ahead.
- Egypt’s car manufacturing industry has been battered since the Arab Spring but there are signs of recovery, including through government support and new/returning players such Kia and Mercedes.
- The outlook for the Iranian auto industry is uncertain as renewed US sanctions and the riyal’s depreciation contribute to raising production costs.
- Sanctions are not only halting the industry’s growth, but hitting existing output and putting off overseas automakers. We expect the Chinese to fill at least part of the void.
- US President Donald Trump’s executive order last year re-imposing sanctions on Iran made no mention of exemptions for autos. We see the potential, therefore, for resumed sanctions to have a large impact on this sector in Iran.
Growth in MENA is expected at 2.5% in 2019, up from 2% in 2018. Lower oil prices suggest oil-importing MENA countries should post more sustained growth rates (4.1% in 2019 against 3.8% in 2018). Growth in oil exporters, however, is forecast to recover to 2% for 2019 versus 1.4% last year, when tighter fiscal policy and oil output cuts weighed on economic activity. Political unrest is flaring in some countries in the region as elections approach and this could take a toll on overall MENA growth.
- Data from SAMA, the Saudi Arabian central bank, suggests the economy is moderately improving driven by expansionary fiscal policy and diversification efforts.
- The government plans to issue international sukuk in 2H 2019 (total issuance could be around USD 31B in 2019), which could provide sufficient headroom to plug the fiscal deficit further.
- Egypt is expected to be the region’s top economic performer in 2019, followed by Iraq.
- Iran will contract again in fiscal year 2019/20 as US sanctions bite. Whether the US will extend waivers to importers of Iranian oil, currently set to expire in May, is another key development to follow.
- On 2 April, Algerian President Abdelaziz Bouteflika stepped down, having been in power since April 1999. The ruling elite, known throughout the country as “Pouvoir” now has the task of sorting his replacement while keeping the street from boiling over.
- Another general strike was averted in Tunisia in early February when the government struck a deal with the country’s largest union to increase wages for 670,000 public employees.
- But tensions are expected to rise ahead of parliamentary and presidential elections due in October and November, respectively, as President Beji Caid Essebsi has called for an overhaul of the constitution.
Florence Eid-Oakden, Ph.D, Chief Economist
Charlene Rahall, Robin Mills, Roa Ibrahim & Mingqiao Zhao, 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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