Oil could push up capital base of the Middle East and North Africa

Dubai

International reserves held by the GCC countries are expected to have increased 29.2 per cent to $815.1 billion (Dh2.99 trillion) in 2012; it is anticipated to grow 19.5 per cent to $974.2 billion in 2013, driven primarily by high oil price, says a report by Kuwait-based Global Investment House.

“GCC economies are expected to marginally lower their public debt, as they continue to direct their surplus oil payouts to meet social expenditures. GCC countries’ public debt–to-GDP ratio is expected to decline to 11.8 per cent in 2012 and to 11.4 per cent in 2013, from 12.1 per cent in 2011,” the report said.

The Middle East’s savings and investment will be led by the oil-rich six Gulf countries that are expected to record fiscal surplus of 14.6 per cent (highest in the last three years), according to Global Investment House.

“Fiscal revenues are expected to rise to 49.3 per cent of the GDP in 2012 as compared to 48.4 per cent in 2011 for GCC countries,” it said.

In response to the increase in fiscal revenues, GCC countries have stepped up fiscal spending through measures such as public sector wage increase, social expenditures on affordable housing, public transportation, direct subsidies to nationals to combat the rising food prices, and unemployment benefits.

Despite the high level of fiscal spending, it is expected to be 34.8 per cent of the GDP in 2012, down from 35.7 per cent in 2011. Continued fiscal spending by GCC countries, to support various planned social expenditures under long-term development plans of the respective countries is expected to cause fiscal surplus to moderate to 11.2 per cent of GDP in 2013.

The Middle East and North Africa (Mena) has significant scope for financial market development, which has the potential to sustain investment but also, along with aging, to reduce saving, World Bank’s Global Development Horizons (GDH) says.

“Thus, current account surpluses may also decline moderately up to 2030, depending on the pace of financial market development. The region is in a relatively early phase of its demographic transition: characterised by a still fast growing population and labour force, but also a rising share of elderly,” the report said.

Real GDP of the Mena countries is expected to expand by 4.8 per cent in 2012 influenced by the growth in oil-exporting countries. The real GDP of oil-exporting countries is anticipated to expand by 5.7 per cent in 2012 as compared to 3.9 per cent in 2011.

Mena economies can be split into two groups, oil exporters and importers. Oil exporters tend to be capital exporters and labour importers. Oil importers tend to be capital importers and labour exporters.

“The two groups of economies are, therefore, complementary. Penetration levels across a range of sectors is relatively low in Mena as an aggregate (though again, oil exporters tend to have more mature sectors) and so Mena carries a lot of growth potential and is already on the fastest growing parts of the World,” Dr Giyas Gokkent, Chief Economist at the National Bank of Abu Dhabi, told Gulf News.

“Population growth is also the fastest in the World and the population profiles are literally pyramid shaped with large young population segments which suggests that Mena growth will continue to be amongst the most rapid in the world.”

MENA’s GDP growth is forecasted to moderate to 3.1 per cent in 2013, in line with growth expectations in the region’s oil-exporting countries, before recovering to 3.7 per cent in 2014.

“After more than doubling to $407.7 billion (14.0 per cent of the GDP) in 2011, current account balance (CAB) in the Mena region was recorded at $396.9 billion (12.5 per cent of GDP) in 2012,” Global Investment House said in a report. “As the combined CAB of Mena oil-exporting countries represent more than 90 per cent of the Mena region, higher oil exports are the primary driver for the high CAB.”

Dr Gokkent said, energy endowments are finite resources and oil exporters are, therefore, pushing ahead aggressively to diversify their economies. “In the long term, current account surpluses as a proportion of these economies should come down,” he added.

Changes in household structure may also impact saving patterns, with a transition from intergenerational households and family-based old age support to smaller households and greater reliance on asset income in old age, World Bank said.

“The region has the lowest use of formal financial institutions for saving by low-income households, and scope for financial markets to play a significantly greater role in household saving,” it said.