MENA region benefiting from resurgence in growth

RIYADH: Driven by mega-investment projects, rising energy prices, greater fiscal prudence and better demographics, the economies of the Middle East and North Africa region are experiencing a revival in growth, according to a report by Franklin Templeton’s Emerging Markets Equity Group.

The Gulf Cooperation Council countries, particularly Saudi Arabia which is the largest economy in the region, has significant expenditure plans. The Saudi government has stated its goal to invest nearly $2 trillion in the domestic sector between now and the end of this decade as part of its Vision 2030 economic reform strategy.

Giga-projects, the report noted, have served as a key pillar of the region’s multi-year reform effort.

Although there have been local and international headwinds, the initiatives have continued to move forward due to the requirements of diversifying the economy away from oil, attracting talent and money, and creating jobs for a youthful population.

Despite fluctuating oil prices and the pandemic, giga-projects have continued to advance steadily, demonstrating the government’s long-term commitment.

The government has attempted to separate the outcomes of the projects from fluctuations in their fiscal condition and, by extension, oil prices by mandating the country’s sovereign wealth fund as the independent sponsor of these projects with its own balance sheet.

This is a significant shift from the past when government expenditure was closely tied to oil prices.

The MENA region’s weight in the MSCI Emerging Markets Index has also risen from 1.6 percent in 2016 to 7.7 percent in 2022. This growth has been driven by the implementation of various market-based changes in recent years.

Initial public offerings, privatization and increased foreign ownership limitations are among them.

Saudi Arabia is the largest single market, accounting for 4.1 percent of the index, and this figure is expected to rise.

In a world grappling with the challenges of declining birth rates and rising dependence ratios, the demography of the GCC economies, notably Saudi Arabia, is heading in the opposite direction.

The Kingdom’s predicted rise in the economically active 25-64-year-old population is among the fastest in developing countries, at 19.6 percent between 2019 and 2039.

The report also forecast a favorable background for MENA equities markets in 2023. However, it stated that the area is not immune to risks such as the impact of interest rates hike on economy.

The reported noted that the link between oil prices and the MENA economic and market outlook is gradually fading as a result of economic diversification and an increasing dependence on sovereign wealth funds to support investment in the area.