Middle East Country Ratings

Published October 29th, 2000 - 02:00 GMT

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Country ratings convey the medium to long-term investment risk in all the Middle Eastern countries as well as the territories under control of the Palestinian Authority. The rating formula is comprised of both political and commercial dimensions. The political assessment, which accounts for two-thirds of the overall rating, considers each nation's internal stability and susceptibility to external political and military threats. The commercial assessment, one-third of the overall ranking, accounts for each nation's macro-economic performance and outlook, as well as government privatization efforts and other economic reforms. A rating of eight or higher conveys a very attractive investment and commercial climate. A rating of three or less suggests significant investment risk.

 

   Algeria  

 3.3  

 2.5  5.0  Strengths:  Strong hydrocarbon sector; foreign investment interest; accelerated privatization plans; government’s attempt to reach national reconciliation  

 Weaknesses: Massive unemployment; dependence on oil and gas sectors; ongoing carnage Danger: Attacks against oil infrastructure; onset of full scale civil war  Bahrain  5.3  5.0  6.0  Strengths:  Attractive commercial environment and burgeoning financial sector; streamlined bureaucracy; Saudi support; strong ties with the West  Weaknesses:  Sunni-Shiite strife; Gulf tensions; dependence on oil revenues; relatively untested leadership of Sheikh Hamad  Danger:  Escalated Shiite violence and domestic unrest; war with Qatar; volatile oil prices 

Egypt 5.8 6.0  5.0  Strengths: Strong export figures for basic goods; debt management; solid leadership; tough stance toward opposition groups; steady privatization of state-owned enterprises  Weaknesses: 

 Volatile oil prices; dependence on expatriate remittances; internal Islamic opposition and Muslim-Coptic rifts; lack of a clear successor to president Mubarak  Danger:  Terror attacks; death of Mubarak; plummeting stock market  

  Iran   

  4.0   

  3.5   

  5.0   

  Strengths:   

  Immense oil and gas potential; increased economic reform and foreign investment; warming relations with the West (especially Europe)   

 

 

  Weaknesses:   

  Growing internal political rifts; accelerating inflation and unemployment; huge black market; increasing student frustration   

 

 

  Danger:   

  Intensified Islamic backlash to growing political reform; retreat from reforms and investment incentives   

 

 

 

  Iraq   

  1.8   

  1.5   

  2.5   

  Strengths:   

  Withering UN resolve; oil for food deal; no capable internal opposition; burgeoning foreign interest in local market   

 

 

  Weaknesses:   

  Dilapidated infrastructure; continued UN sanctions   

 

 

  Danger:   

  Retreat of oil for food deal; Shi’ite majority unrest; outbreak of war   

 

 

  Israel   

  6.0   

  5.5   

  7.0   

  Strengths:   

  Diverse economic base; commitment to privatization and other reforms; advanced infrastructure; booming IT sector; skilled workforce; strong relations with the West   

 

 

  Weaknesses:   

  Sluggish economic growth; deteriorating relations with Palestinians; uncertain border with Lebanon; internal societal rifts   

 

 

  Danger:   

    Palestinian rioting; complete collapse of peace talks; international alienation; outbreak of war with Palestinians   

 

 

  Jordan   

  5.0   

  5.5   

  4.0   

  Strengths:   

  Revered monarchy; positive economic reforms; close ties with West; warming regional relations   

 

 

  Weaknesses:   

  Poor economic performance; Pro-Iraqi, pro-Palestinian, anti-Israeli opposition groups; scarcity of vital natural resources; heavy debt burden; inexperienced monarch   

 

 

  Danger:   

  Rift in Royal Family; riots; war in the Gulf and cut off of oil supplies   

 

 

  Kuwait   

  5.8   

  5.5   

  6.5   

  Strengths:   

  Solid military alliance with US and UK; gigantic oil reserves; large government holdings abroad; liberalization of investment laws   

 

 

  Weaknesses:   

  Caught between US/UK-Iraqi tensions; dependence on oil revenues; growing anti-Western sentiment; domestic political rifts over economic policy   

 

 

  Danger:   

  War with Iraq; failure to diversify economy; stock exchange crash   

 

 

  Lebanon   

  3.6   

  4.0   

  3.0   

  Strengths:   

  Relatively diversified economic base; international economic commitment to reconstruct the country’s southern region   

 

 

  Weaknesses:   

  Uncertain future in the south; slowing economic growth; mounting public debt; civil strife; wide-spread public corruption   

 

 

  Danger:   

  Escalation of conflict in the south; civil war; economic collapse   

 

 

  Libya   

  4.7   

  5.0   

  4.0   

  Strengths:   

  Ample oil reserves; strong centralized political control; resolution of Lockerbie impasse; end of international sanctions; increased interest by foreign investors   

 

 

  Weaknesses:   

  Growing opposition; stagnant economy; lack of economic reform   

 

 

  Danger:   

  Civil war; further economic slide due to volatile oil prices   

 

 

  Morocco   

  6.0   

  6.0   

  6.0   

  Strengths:   

  Continued political reforms; considerable flow of tourism and foreign investment; commitment to privatization   

 

 

  Weaknesses:   

  Susceptibility to natural disaster and drought; relatively untested leadership of King Mohammed; poor human rights record   

 

 

  Danger:   

  Repeated drought and collapse of agricultural sector; mounting tension with Algeria   

 

Oman  5.6  6.0  5.0    Strengths:   

  Substantial oil and LNG reserves; expansion of infrastructure; increasing openness to foreign investors; preliminary steps toward privatization   

 

 

  Weaknesses:   

  Low employment of nationals; lack of economic diversity; dependence on foreign assistance   

 

 

  Danger:   

  Further oil price and LNG market shocks; regional war, Death of Sultan Qaboos   

 

Palestinian Authority  2.7  2.5  3.0    Strengths:   

  Significant donor aid and support; educated merchant class; potential Diaspora investment   

 

 

  Weaknesses:   

  Popularity of opposition movements (Hamas); economic dependence on Israel; wide-spread corruption   

 

 

  Danger:   

  Increased rioting; collapse of peace process; war with Israel; death of Arafat   

 

Qatar  6.2  6.0  6.5    Strengths:   

  Large LNG reserves; broadened political participation; expanding export markets   

 

 

  Weaknesses:   

  Strained inter-Arab relations; marginal non-oil sector   

 

 

  Danger:   

  Loss of LNG markets in Asia; volatile oil prices; war with Bahrain   

 

Saudi Arabia  5.6  5.5  6.0    Strengths:   

  Large oil reserves; strong Western alliances and military backing; liberalization of foreign investment laws   

 

 

  Weaknesses:   

  Growing internal opposition; over-dependence on oil sector; sluggish economic growth   

 

 

  Danger:   

  War with Iraq; internal terrorist attacks   

 

Syria  3.1  3.5  2.5    Strengths:   

  Oil reserves; centralized political control; economic and political foothold in Lebanon   

 

 

  Weaknesses:   

  Untested leadership of Bashar; stalled peace talks; insignificant economic reforms; deep recession; depleting oil reserves; inflated bureaucracy and corruption   

 

 

  Danger:   

  Attempts to overthrow Bashar; war with Israel; skirmishes on Turkish border   

 

Tunisia  6.5  6.5  6.5    Strengths:   

  Internal political stability; commitment to continued economic reforms; growing foreign commercial interests   

 

 

  Weaknesses:   

  Proximity to unstable countries (Libya, Algeria); unskilled labor force and high unemployment; increasing focus to questionable human rights’ record   

 

 

  Danger:   

  Arrest of opposition figures; stalling economic reform program   

 

United Arab Emirates  8.0  8.0  8.0    Strengths:   

  Substantial oil reserves; growing economic diversification; liberal political and business tradition; emerging regional IT hub; ability to adjust swiftly to economic challenges   

 

 

  Weaknesses:   

  Increasingly tense relations with neighboring Iran; competition from other Gulf port hubs   

 

 

  Danger:   

  War in the Gulf; oil price shocks   

 

Yemen  3.6  4.0  3.0    Strengths:   

  Significant oil & gas reserves; foreign investment in Aden Port; commitment to economic reforms; improving regional relations   

 

 

  Weaknesses:   

  Tribal opposition acts; government corruption; abysmal economic situation; dangerously high population growth rate   

 

Danger:Renewed civil war  

 

 



 

The information contained within this report is updated as of early-July 2000. At this point, MENA Report can testify that in the economic domain, an important development has been the liberalization of foreign investment laws in a number of Gulf States. These markets, which are among the most lucrative in the Middle East due to their vast oil reserves, had been largely inaccessible to foreigners. In recent months, however, Kuwait, Bahrain and Saudi Arabia have passed laws granting international investors more open rights to their indigenous resources. Furthermore, the UAE’s new securities markets in Dubai and Abu Dhabi are in the process of opening trading to international investors. Elsewhere in the Middle East, however, economic developments have not been as encouraging. Lebanon’s mounting public debt has put its economy on the verge of collapse, and a liquidity shortage in Egypt has undermined years of solid commercial achievements.  



 

In the political realm, the most significant event was the June 10 passing of Syrian President Hafez Al-Asad. Asad had ruled his country ruthlessly for 30 years, and suppressed opposition elements with an iron fist. At the same time, however, he secluded Syria from the global market, thus forcing its economy into a state of perpetual decay. The accession to power of his son, Dr. Bashar, confirmed on July 10, brings with it uncertainties as well as enticing possibilities. Syria’s standing as a regional power is certain to decline, and the young leader may even encounter domestic challenges from members of the security apparatus. On the other hand, Bashar represents a new generation of Arab leaders who embrace the Internet and globalization. Since his father’s demise, Bashar has already demonstrated his commitment to reform by proposing a new law that would permit foreign banks to operate in free trade zones. Still, Bashar is unlikely to deviate significantly from his late father’s foreign policy stance towards Israel. Moreover, regional dynamics were altered with the Israeli withdrawal from south Lebanon, following 18 years of military presence. 

© 2000 Mena Report (www.menareport.com)

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