Focus on India and China could be of Great Benefit to the Middle East: MasterCard Report

Published December 20th, 2009 - 11:24 GMT

To fast track its recovery, the Middle East could explore how to better leverage the two rising economic giants in Asia: India and China. With both markets having succeeded admirably in weathering the global recession; the potential is certainly here for the Middle East to increase its exports to both India and China.
Based on the latest MasterCard Worldwide Insights report – Global Recession and the Middle East - Perspective from the Europe Linkage, the Eurozone’s recovery from the global recession is being made difficult and prolonged due to an internal structural imbalance. Such an imbalance is proving to be a drag on global economic recovery; negatively affecting key regions of the world economy, including the Middle East.

“The structural imbalance within the Eurozone is a cause for concern for the Middle East economy. A prolonged slump in Europe, on top of a slow recovery in the US, may seriously affect recovery in the Middle East,” said Dr. Yuwa Hedrick-Wong, economic advisor, Asia/Pacific, MasterCard Worldwide. “There are several key variables that may further hinder demand from the Eurozone for Middle East exports especially in light of the exchange rate movement between the US dollar and the euro.”

In light of the coming recovery period for the Middle East, taking the importance of Eurozone into consideration, the key variables include:

• A rise in the US interest rates will likely come about ahead of the Eurozone. This logic suggests an appreciation in the US dollar versus the euro over the course of 2010. Since commodities in global trade are all priced in US dollars, everything else being equal, Middle East exports will be more expensive in the Eurozone.
• The US is importing more oil from Africa than from the Middle East. In March 2009, American oil imports from Africa exceeded that of the Middle East. Thus, for oil-exporting countries in the Middle East, the coming recovery in the US may not bring as much relief as in the past either.
• The importance of the Eurozone can also be gauged in terms of the Middle East’s exports to the Eurozone as a percentage of GDP. Lebanon has the highest exposure, with its exports to the Eurozone estimated at 12% of its GDP in 2008 . This is followed by the UAE at 11%, Egypt at 7%, and Qatar at 6%1.
• Yet another way to assess the importance of the Eurozone to the Middle East is to look at the exports to the Eurozone relative to exports to the US.
o Lebanon is the most highly geared towards the Eurozone compared with the US. Its exports to the former is an astonishing 35 times (3,500%) that of its export to the latter1.
o This is followed by the UAE with a ratio of about 23 and Qatar at about 131. Saudi Arabia’s exports to the Eurozone, on the other hand, came to only about 37% of its exports to the US in 2008, similarly for Egypt, at 48%; and Kuwait, at 59%1. Thus, markets like Saudi Arabia, Egypt, Kuwait, and Syria are better positioned to benefit from the earlier recovery in the US1.

India and China are two successful examples of recovery in a time of global recession, which the Middle East may choose to follow to support and expedite its recovery process. The two rising economic giants in Asia, have successfully managed not only to weather the global recession, but also to achieve healthy economic growth with timely monetary easing and fiscal boosts to the domestic economy in spite of the severe global credit crunch and collapse of trade. The potential for the Middle East is certainly there to increase its exports to both India and China.

Exports to India in 2008 by key markets in the Middle East expressed as a ratio of their exports to the Eurozone and their average annual growth rates over the 2004 to 2008 period show considerable potential for India to be a high growth market to the Middle East.  While export values to India from the Middle East are still relatively low; it is the average annual growth rates of the various Middle Eastern markets exports over the 2004 to 2008 period that are extremely impressive. Kuwait leads with an average annual growth rate of 274%; followed by Syria’s 269%, Saudi Arabia’s 174%, Egypt’s 150%, and Qatar’s 102% , to highlight a few. It is therefore very clear that India should be a market of special focus.

The picture of exports from the Middle East to China, while slightly different shows that exports from key markets in the Middle East expressed as a ratio of their exports to the Eurozone range from 20% (from UAE), 50% (from Oman and Qatar), 120% (from Kuwait), 170% (from Saudi Arabia, and 350% (from Lebanon)3. The exception is Syria where its exports to China came to only 0.3% of its exports to the Eurozone in 2008. Egypt is also low, with its exports to China equal to only 4% of its exports to the Eurozone. The growth rates of their exports to China are, however, uniformly high (though not as high as the growth rates of their exports to India), with Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and UAE in the 47% to 63% range. Syria has the lowest growth rate at 17%.

“In the short to medium term, a strong focus on India and China could be of great benefit to the Middle East, especially in light of these markets’ anticipated growth,” concluded Dr. Hedrick-Wong.

MasterCard and its Suite of Research Properties
MasterCard Worldwide Insights is part of MasterCard’s ongoing research and analysis of business dynamics, financial policies and regulatory activities in the Asia/Pacific, Middle East and Africa region. Over 60 Insights reports have been produced since 2004. The reports do not represent MasterCard financial performance.

In addition to these Insights report, MasterCard also releases a series of Indexes, rnaging from the MasterCard Worldwide Index of Consumer Purchasing Resilience to the MasterCard Worldwide Index of Consumer Confidence and MasterCard Worldwide Index of Women’s Advancement. MasterCard has also released a series of four books on Asian consumer insights, authored by its Asia/Pacific economist, Dr. Yuwa Hedrick-Wong and published by John Wiley & Sons.

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