Q1 2019 MENA Outlook Extended Outline

MENA-Turkey: The love-hate relationship endures

Our quarterly regional theme to be published in full on 20 December analyses trade and investment relations between the Middle East & North Africa (MENA) and Turkey. It highlights the inroads Turkey has been making into MENA economically since 2002, while also noting recent rifts between the two sides.

  • Turkey differs with many of its MENA partners on policies regarding Syria, Russia, Iran, Qatar and the Muslim Brotherhood. We see a number of key issues ahead in 2019.
  • Though there have been tensions with Saudi Arabia, the two countries have traditionally tried to avoid public spats and we expect the current one to dissipate over 2019.
  • GCC countries are the third largest source of foreign investment in Turkey, after Britain and the Netherlands. On average over the last ten years, the proportion of FDI from the GCC made up 80% of total MENA inflows into Turkey.
  • Although Turkey is unlikely to abandon its EU-centric policies it will scale-up exports to more rapidly growing markets. MENA countries, with a total population of over 380 million people, are attractive markets.
  • There are large trade opportunities that could benefit MENA suppliers such as the UAE and Bahrain, which are major aluminium exporters.
  • The Turks would also like to benefit from the growing number of tourists coming from the MENA countries, especially from the GCC.
  • Turkey is also looking to broaden Arab investment beyond real estate. We point to retail, agriculture and banking as some of the channels to tap into Turkish growth, especially in light of the weaker value of the Turkish lira versus the individual currencies in the region.

The IMF’s November Regional Economic Outlook for the MENA region projected GCC growth to recover by 2.4% this year and to rise a further 3% in 2019, compared with a contraction of 0.4% in 2017. It assumes a minimal direct impact from any global trade wars but notes that the region could be affected by lower growth in its key economic partners, a slowdown in global growth as well as worsening emerging market sentiment.

  • In the UAE, GDP growth is projected to rise from 0.8% in 2017 to 2.9% in 2018 and 3.7% in 2019. Meanwhile the Saudi economy is expected to grow by 2.2% in 2018 and 2.4% in 2019 from minus 0.9% in 2017.
  • GDP growth in Bahrain, Kuwait, Oman and Qatar are projected at 2.6%, 4.1%, 5% and 2.8% respectively next year.
  • Reflecting the expected impact of re-imposed sanctions on Iran, growth in non-GCC oil exporters (such as Iraq) is projected to slow to 0.3% in 2018, down from 3% in 2017, and to pick up modestly to 0.9% in 2019. The IMF expects sanctions to reduce Iranian oil production and exports significantly over the next two years at least.
  • Growth in oil-exporting countries troubled by internal conflict has been mixed. While Libya’s growth was strong in 2017, primarily driven by increased oil production, activity in Yemen contracted further. The outlook for these countries is expected to improve, if the conflicts subside. IMF projections for these countries, therefore, are subject to the success of peace initiatives.

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