The Middle East and North Africa (MENA) economic region is a diverse and multicultural grouping of countries, from Morocco in North West Africa to Oman at the foot of the Arabian Peninsula. It encompasses all the Gulf Cooperation Council (GCC) countries and the Arab countries of North Africa.
The area has seen a significant amount of upheaval in recent years, but its economic potential remains undimmed. The region has a population of around 450 million and a gross domestic product of USD3.6 trillion and The World Bank expects economic growth to average 2.6 per cent in 2019-2020.
Many of the region’s larger economies are still heavily dependent on oil revenues, however significant projects are being implemented to diversify those economies and develop new forms of sustainable revenue.
Taking the GCC region as an example, figures from the International Monetary Fund (IMF), show that oil revenues in the region were almost 80 per cent of government revenues, on average, between 2000 – 2017. Oil exports represented 65 per cent of total exports and oil GDP represented 45 per cent of total GDP.
This landscape is changing though, as policymakers realise that diversification of the economy will reduce this dependency, creating more private sector jobs, while increasing productivity and sustainable economic growth.
Non-oil exports have increased accordingly, from 16 per cent of non-oil GDP in 2000 to 32 per cent in 2017. This robust growth has been concentrated in capital-intensive downstream industries, such as petrochemicals and aluminium, that directly capitalise on the region’s competitive advantage in abundant hydrocarbons and subsidised energy. Tourism is one of the region’s fastest-growing sectors. In 2016, the GCC’s exports of tourism were approximately half of total services exported. The UAE and Saudi Arabia account for more than 75 per cent of travel receipts, given their leading positions as leisure and religious tourism destinations.
The Organisation for Economic Cooperation and Development (OECD) has put a range of programmes in place to aid the transition to a balanced economy and make the MENA region a more attractive place to do business. The OECD-MENA Competitiveness Programme has a wide remit, ranging from the empowerment of women through to business integrity. Elsewhere, the OECD’s governance initiative looks at issues like regulatory reform, public sector innovation and youth empowerment as ways to boost economic attractiveness.
Regardless of internal changes, foreign direct investment (FDI) is also needed to develop a multi-faceted economy. While reforms have been implemented to attract foreign investment, these have taken place against the backdrop of the lingering effect of the global financial crisis and rising uncertainties and geopolitical tensions in the Middle East region. Attracting FDI is therefore important, because it can bring access to foreign markets, better management practices and technical know-how to the domestic economy, thus enhancing work force skills and increasing productivity.
Restrictions on ownership of land or business operations has hampered the flow of FDI into many countries, however some MENA jurisdictions have come up with innovative ways to encourage investment.
The United Arab Emirates (UAE) has established more than 20 special economic zones (SEZs), where foreigners may own up to 100 per cent of the equity in an enterprise, have 100 per cent import and export tax exemption and repatriate 100 per cent of capital and profits. This is not the case for businesses held on the UAE mainland. Oman has also established three free-trade zones at strategically located ports, while Saudi Arabia has announced plans to build new economic cities.
The MENA region is made up of a diverse range of economies with differing levels of openness to international trade and investment. Despite this, with the help of supranational bodies such as the OECD and IMF, it is beginning to realise its economic potential. A modernising commercial attitude and a realisation that diversity creates strength, is helping the region to prosper.
The following feature calls on the expertise of advisors with experience of working in the MENA region. They offer specific advice on a range of topics, from immigration, to shareholder agreements, to developments in the Arabic music industry.