Atradius: Rising oil prices bring welcome post-recession cash injection to oil producing nations

Atradius’ latest economic report on the Middle East and North Africa (MENA) acknowledges the importance of the growth in oil prices for the energy-exporting economies of the region. However, it also notes the limits to growth presented by an underdeveloped private sector and the ongoing downside risks to the economic outlook caused by the pandemic.

DUBAI,
UAE – Media OutReach – 8 February 2022 – Rising
oil prices are boosting economic growth throughout the oil producing economies
of the MENA region, with predictions that GDP will largely return to
pre-pandemic levels during the course of 2022. Oil prices are expected to level
out at about USD70 per barrel, with global demand for oil picking up. In the
countries of the Gulf Cooperation Council (GCC) oil activity is expected to
grow by up to 8% in 2022, a huge increase on the 0.5% recorded last year.

Many of the energy-exporting nations have also enacted strong vaccine
strategies, which in turn has enabled them to lift lockdown measures and reopen
domestic sectors such as retail and tourism.

However, despite a brief role when they led the economic recovery during
the oil price shock, several non-energy exporting nations have now slipped
behind their GCC neighbours when it comes to short-term growth predictions. For
Jordan and Lebanon, in particular, ongoing high Covid-19 infection rates are
negatively impacting their economic rebounds and contributing to weak economic
growth.

The development of the region’s private sector is also likely to have an
impact on the size and speed of the region’s economic recovery. As the report
outlines, without private sector reform, economic growth will slow. This is
true of most GCC countries where the share of the state-owned hydrocarbon
sector dwarfs their various private sectors, but also in Algeria and Egypt
where restrictions on imports and foreign investment, and a preferential
treatment of state-owned companies over private companies in public tenders are
additional factors that are stifling business.

Although vaccine
programmes and the development of the private sectors are important for the
region’s economy, growth is still heavily dependent on oil. Niels de Hoog,
Senior Economist, Atradius, acknowledged that the world economy will still
require energy from fossil fuels on a large scale for several decades. However,
he noted that despite plans to expand the capacity of hydrocarbon production,
many GCC nations are also investing in renewable energy. He said: “Investments
in renewable projects are being stepped up simultaneously to increase the share
of domestic energy consumption that comes from renewable sources. The additional
fossil fuel production will mainly be destined for exports.” At the same time,
the rise in home-grown renewables is also changing the economic prospects of
the region’s non-hydrocarbon producers for the better as they become less
dependent on imported energy.

Schuyler D’Souza,
Managing Director Middle East, Atradius said: “The Atradius Regional Economic
Outlook for the Middle East and North Africa paints a varied picture. On the
one hand we are seeing a rebound from the economic crises of the pandemic
downturn and the oil price shock. However, on the other hand, additional
factors are impacting projected growth in the region. Primary among these are
the slow rate of vaccine roll-out in some of the economies and heavy dependence
on state-owned hydrocarbon businesses. This picture may change over the next
few years as some of the region’s countries expand investment in renewable
energy and enable growth among the private sector.”

Get the Atradius
Economic Research Report here: https://atradius.com.hk/en/publications/economic-research-petrodollars-boost-mena-private-sector.html

 

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