Regional Focus: Middle East and North Africa Exports Rebound Set To Continue

The Middle East and North Africa (MENA) region is heavily dependent on exports (particularly energy) for overallgrowth and suffered severely from the global economic crisis of 2008-2009. In 2010 export markets reboundedstrongly thanks to higher oil prices and increased demand for exports from Asian Pacific economies. This upturn inthe export market will help push overall growth of economies in the MENA region in 2010-2011.

Key points

• The global economic crisis of 2008-2009 severely affected the export market in Middle East and Africa withtotal exports falling by 30.5% (in US$ terms) in 2009 to US$1.1 trillion. The MENA accounts for over 75.0% ofthe region's exports each year and total exports for this region fell by 30.7% in 2009 to US$817 billion;

• Exports play an important role in economies within the MENA region and averaged 45.5% of GDP for theregion between 2004 and 2008. In 2009, however, it fell to 38.6% of GDP in 2009 owing to the decline in globaldemand for exports and lower crude oil prices;

• The MENA region has an estimated 60.0% of global oil reserves and over 40.0% of world's natural gas reserves.As a result, exports of mineral fuels account for the largest share in total exports in the region and averaged over70.0% of total exports between 2004 and 2008 before dropping to 53.6% of total exports in 2009 owing toreduced global demand for oil and natural gas;

• In the first half of 2010 exports from the Middle East and Africa rebounded by 35.0% year-on-year (y-o-y)according to the World Trade Organisation (WTO) owing to the increase in crude oil prices and growingdemand for commodities from Asia. Together this will result in a strong recovery of the export sector aidingoverall growth in the region;

• The growing importance of Asia Pacific as a destination for the Middle East's exports has been a major factor ineasing the pain of a decline in exports to the USA and Europe during the global economic crisis of 2008-2009and will help the rebound in exports in 2010.An export-dependent region dependent on energyThe export market is one of the main sources of revenues for economies in the MENA region with energy playing amajor role:

• Exports from the MENA region have shown robust growth and increased by an annual average growth rate of25.7% between 2004 and 2008. However, with the global economic crisis of 2008-2009, export growth declinedby 30.7% annually in 2009 owing to falling demand for oil and gas, the region's main export commodity. Withinthe MENA, Algeria and Kuwait witnessed the highest annual decrease in 2009 while most other countriesrecorded a double-digit decline. Export growth in these two countries fell by 44.8% and 42.5% respectively in2009;

• In terms of export dependence, in 2009, the UAE and Oman had the highest exports to GDP ratios of 78.6% and60.8% respectively. Countries like Bahrain, Libya, Iraq, and Saudi Arabia also had high exports to GDP ratio(above 50.0%). On the other hand, economies like Egypt and Morocco, are less dependent on exports for overallgrowth and exports accounted for 12.3% and 15.1% of total GDP in 2009 respectively. Although Egypt is reliesheavily on its mineral fuels exports, the economy is diversified and generates sizeable revenues from tourismeach year;

• Within the MENA region, Saudi Arabia had the world's largest proven oil reserves at the end of 2009, andaccounts for the largest share of MENA exports at 23.1% in 2009 totalling US$189 billion;

• In terms of export base, the MENA region depends heavily on revenues from oil exports. Exports of mineralfuels accounted for 53.6% of total exports in 2009. During the year, exports of mineral fuels within the regiondeclined by 47.9% over a year ago owing to the 36.3% annual drop in crude oil prices in 2009. This resulted insignificantly lower export revenues from oil-exporting countries in the MENA region. Within the region, Iranhas the highest share of mineral fuels exports to total exports at 86.2%;

• The trade balance in the MENA region is split between the Gulf countries with a high trade surplus and the nonoilexporting countries like Morocco who have a trade deficit. Overall the MENA region had a trade surplus butit was affected by the downturn in 2008-2009 and the trade surplus dropped by 57.4% in 2009 to US$186billion.Source: Euromonitor International from International Monetary Fund (IMF), International Financial StatisticsGrowing role of economies in Asia Pacific for Middle East exportsThe role of export markets in Asia has grown in importance since the global economic crisis of 2008-2009 andeconomies in the Middle East are increasing their exposure to big importing countries like China and India:

• In 2009, Asia Pacific accounted for the highest proportion of MENA exports at 35.8%, followed by Europe at20.5%. Intra-regional trade is also high and accounted for 12.8% of total exports in 2009. Export demand fromcountries in Asia Pacific play a key role for the MENA region and MENA exports sent to this region saw periodgrowth of 117% between 2004-2009 reaching US$292 billion in 2009;

• As the world's largest liquefied natural gas (LNG) importer, Japan accounted for the largest share of MENAexports sent to Asia in 2009 at 32.0%. Japan's economy will remain an important export destination for theMENA exports as it has no proven oil reserves and was the third largest consumer of oil (after USA and China)in 2009;

• China and India's importance as an export destination for MENA exports is also growing each year and recordedan annual average growth rate of 24.6% in China and 44.4% in India between 2004 and 2009. In 2009, Chinaaccounted for 21.0% of MENA exports to Asia, up from a 4.3% in 2004, while India accounted for 7.1% ofMENA exports to Asia, up from 2.0% in 2004. China has limited energy sources and highly reliant on energyimports to support its rapid economic growth.Export growth is expected to rebound in 2010-2011 positively impacting government revenues and investmentopportunities:

• The MENA region came out relatively unscathed from the global economic crisis of 2008-2009 compared toother regions, partly owing to oil revenues that allowed Middle East economies to swiftly introduce big stimuluspackages and enabled the MENA economies to resume growth earlier than other regions. In 2009, the MENAregion posted a 2.3% real GDP growth, compared to a contraction of 1.7% in Latin America;

• Exports in the Middle East and Africa have rebounded in the first half of 2010 according to the WTO and exportgrowth jumped by 35.0% y-o-y owing to increased crude oil prices. This recovery will contribute to strongereconomic growth for the region which is forecast to grow by 4.9% in 2010 and real GDP in the MENA region isforecast to grow by 4.4% in the same year;

• As the global economy recovers slowly, crude oil prices bounced back in 2010 averaging US$76.8 per barrelbetween January-August 2010 compared to US$55.8 per barrel in the same period of 2009. This will positivelyimpact oil-exporting MENA economies as higher oil prices will bring in higher revenues;

• Both consumers and businesses benefit from access to cheap energy sources in the MENA region. While thereliance on oil revenues is advantageous for oil-exporting countries like Algeria, Libya, Oman and SaudiArabia, it can also pose risks with severe fluctuations in crude oil prices as they lower oil revenues, adverselyimpacting inward investments and lower growth affecting both businesses and consumers. As a result, manygovernments are trying diversify their economies;

• The fall in exports and reduced oil revenues affected foreign direct investment (FDI) inflows from the MENAregion which fell 22.2% in 2009 from 2008 to reach US$82.9 billion. With the rebound in oil prices and exportrevenues, FDI inflows are likely to see an upward trend in 2010.

Prospects

Higher commodity prices will help push growth in the MENA region, particularly in Middle East economies. Theregion will continue to increase its exposure to Asian markets and will push to drive regional investment:

• According to the WTO, world trade in the first half of 2010 has increased by 25.0% y-o-y and will grow by13.5% in 2010. The MENA region will benefit from this increased trade flow. Higher commodity prices andgreater demand from Asia will boost export growth during the year;

• Demand for raw commodities such as oil will continue to rise as rapidly growing emerging economies, likeIndia and China, compete for resources and crude oil prices are expected to reach US$100 per barrel by 2020.This will provide fiscal respite for oil-exporting countries in the MENA region;

• The share of Middle East exports to Asia Pacific will continue to grow with increasing demand from the regionbut exports to Europe will not improve in the short term reflecting the uneven recovery of European economiesand reduced demand owing to the eurozone debt crisis. The share of exports to Europe is expected to show adecelerating trend;

• Economies in the MENA region are set to recover strongly owing to the rebound in exports in 2010, with annualreal GDP growth being forecast to reach 4.4%, up from 2.3% in 2009. In particular, Qatar (the world's largestLNG producer) is forecast to grow by 18.5% in 2010, amongst the highest real GDP growth rates in the worldduring the year.