Hydrocarbons fuel MENA economies

Continued low oil prices might benefit consumers but would trigger energy-security concerns.

Social and political challenges in the wider Levant and North Africa region are in stark contrast with the economic boom much of the GCC is enjoying. The Arabian Gulf economies are benefiting from years of robust hydrocarbon dynamics, although they also face longer-term challenges, says the latest report from Standard Chartered, titled ‘Adjusting to reality’ focusing on Middle East and North Africa.

It says subsidies in the region are too high, especially in the energy sector. This creates a fiscal burden on oil importers, and productivity distortions for exporters. The MENA region’s energy subsides are equivalent to $236.7 billion annually, according to the International Monetary Fund – 50 per cent of the global total. Some countries are implementing reforms, either by cutting subsidies directly or by developing alternative sources of energy to meet high levels of domestic energy consumption. In other countries more needs to be done.

The oil giant of the region, Saudi Arabia, is pouring resources into its longer-term development objectives, supporting healthy economic growth. Yet this brings inflation and concerns about productivity.

On the other hand, Dubai’s economy, which not long ago faced severe challenges, is performing extremely well against a backdrop of strong investment in the region, benefiting from its role as a trade and services hub. Jordan is now fast-tracking badly needed energy reforms to slow the drain on government finances. Egypt’s political transition is ongoing, and funding from the GCC is supporting the Egyptian pound (EGP) and the balance of payments. Reforms, however, have been delayed and look unlikely as long as social pressures and political uncertainty remain high, reveals the Standard Chartered report.

To read the report in full, please click here.