As Alastair Newton wrote in our 10 January newsletter
OPEC+ in all likelihood will seek to target a price between US$80-90 by
the end of 2022. But the cartel will face a global market still
hampered by the impact of COVID and by geo-political uncertainty, chief
among them the fate of the JCPOA talks and the threat of a Russian
invasion of the Ukraine. Another challenge is US shale oil production
currently hitting record levels.
As for Egypt, Capital Economics expects the value of the Egyptian
pound to drop, losing 8% of its value by the end of the year. This is a
bigger drop than the consensus call but it is justified the report says
because “there is a growing risk that officials hold on to the currency
for too long, necessitating a sharper and larger adjustment further down
the line and the need for aggressive interest rate hikes as a result.”
Egypt, thanks to the mega-projects the government of President Abdel
Fattah el- Sisi is embarked on, is already massively indebted and paying
high rates of interest on the debt. As Maged Mandour wrote in our 30 November newsletter
Sisi’s debt-fuelled growth model coupled with the stranglehold the
military has on the economy has severely damaged the private sector and
correspondingly shrunk the tax base:
This, combined with a highly regressive taxation system and high
interest rates on public debt creates more pressure on the regime to tax
consumption and cut social spending, which not only raises poverty
rates but also weakens local demand, which in turn negatively affects
the private sector. Hence, a fiscal trap is laid with rising poverty
rates, increasing debt, and a systematic transfer of wealth to military
elites.
The World Bank in its January 2022 report
included Egypt amongst countries with high levels of government debt
(the others are Bahrain, Jordan, Lebanon, Morocco, Oman and Tunisia) a
situation that “undermines the effectiveness and ability to implement
necessary countercyclical policy, the ability to increase investment in
human and physical capital, and private sector confidence.”
Tunisia’s President Kais Saied, the architect of the ‘soft’ coup that
ended a fragile democracy, is described by Capital Economics as driving
the country towards a sovereign default by year’s end. In their view:
“The president’s power grab and suspension of parliament until December
this year will leave Tunisia in a state of policy paralysis, making it
difficult to pass much-needed fiscal consolidation and secure IMF
lending.”
Elsewhere in MENA Lebanon’s economy lies in ruin, Jordan is in deep
trouble and in Yemen, Libya and Syria the economy that is flourishing is
based on war: weapons, drugs and people smuggling.
Noting that country performances have been “mixed” in large part due
to the financial resources or lack thereof to combat COVID, the World
Bank anticipates that growth in the MENA region will accelerate to 4.4%
before slowing in 2023 to 3.4%. It adds that:
Further COVID-19 outbreaks, social unrest, high debt in some
economies, and conflict could undermine economic activity. Delays in
structural reforms or transitioning away from fossil fuels, as well as
governance setbacks, could further constrain growth prospects. With
climate change increasing the frequency of natural disasters in an
already water-scarce region, adaptation will have to accelerate to limit
future economic disruption.
The economic powerhouses of Saudi Arabia, the UAE, Kuwait and Qatar
remain well positioned thanks to the primacy of hydrocarbons but as that
primacy is increasingly challenged by alternative sources of energy the
urgency of diversifying their economies is well apparent to their
governments. Less clear, perhaps, to those same governments is the
reality that all around the neighbourhood economies have failed or are
failing, affecting the lives and futures of more than 500 million
people.
Saudi Arabia and the UAE have worked assiduously and effectively to
thwart the popular movements of the Arab Spring, movements that grew
from the anger of the impoverished many at the corruption and obscene
wealth of the few. And while those efforts may have stilled the Arab
Spring the poverty that birthed it is steadily increasing.