Overview
Since our last report, we have seen some flattening of Covid-19 cases across most of the GCC (the Gulf Co-operation Council, including Bahrain, Kuwait, Oman, Qatar and Saudi Arabia), particularly in the Kingdom of Saudi Arabia (KSA). Strong government policies are starting to demonstrate headway. Nonoil sector activity in KSA and UAE in the month of September, measured against the Purchasing Manager Index, pushed into expansion territory for the first time. While there is still some way to go before these economies recover, there is positive hope for economic health.
In some sectors across MENA we are now seeing improvements in certain geographies, sectors and even individual industries that will potentially come out of Covid-19 better than initially predicted. Businesses that are aligned, have good business plans and that are tech-enabled will see the most benefit.
In the longer term, governments can no longer be reliant on oil and the pandemic has fast-tracked this policy. Countries such as the KSA, UAE and Qatar are now investing heavily to transition away from oil to other energy sources. United Arab Emirates has since launched operations to create the Arab world’s first nuclear power plant, on the Gulf coast just east of Qatar.
Bahrain’s budget deficit is likely to double as a share of GDP and falling oil prices in H1 2020 cut government revenue by 28.6%. Increased MENA debt to GDP ratios are predicted to be on average increased by 10 percentage points, which is still low by international standards. Continued pressure on the importance of revenue diversification for the region will be the theme moving forwards.
Likewise, GDP growth was revised abruptly down across MENA by the IMF. Ever since April, all IMF WEO forecasts has been marked downwards (see table 1). It is worth noting that Oman is anticipated to have the sharpest reduction in 2021 due to the structure of the Omani economy. It has a reliance on travel and therefore has less fiscal room.
Qatar is expected to be one of the outperformers in the GCC in terms of speed of recovery. Google mobility data shows recovery in visitor numbers in Q3 2020. That said, IMF figures suggest that it will take four years or more for the MENA individual economies to recover.