Lebanon’s economy to contract amid ongoing armed conflict, as region faces challenging 2024: EBRD

Lebanon’s economy to contract amid ongoing armed conflict, as region faces challenging 2024: EBRD
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Updated 01 October 2024
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Lebanon’s economy to contract amid ongoing armed conflict, as region faces challenging 2024: EBRD

Lebanon’s economy to contract amid ongoing armed conflict, as region faces challenging 2024: EBRD
  • Inflation, which had soared to a peak of 352 percent in March 2023, decreased to 35.4 percent by July 2024
  • Nonetheless, unemployment remains high, with over a third of the workforce without a job

RIYADH: Lebanon’s economy is projected to contract by 1 percent in 2024 under the severe weight of armed conflict and a deepening political and economic crisis, though a return to growth remains possible.

The European Bank for Reconstruction and Development’s latest Regional Economic Prospects report highlighted that these factors have created an environment of extreme instability, further undermining gross domestic product growth prospects due to stalled reforms and the lack of progress on an International Monetary Fund program.

Inflation, which had soared to a peak of 352 percent in March 2023, decreased to 35.4 percent by July 2024. Nonetheless, unemployment remains high, with over a third of the workforce without a job, highlighting the dire socio-economic conditions. 

The EBRD report noted that a return to modest growth is possible, saying: “Growth could return to a forecast 2 percent in 2025, provided regional tensions subside with some progress on reforms and an IMF program in place.”

The adoption of the 2024 budget law, aligning the exchange rate closer to market rates, has provided some stabilization, but Lebanon’s economy remains vulnerable.

Regional outlook for 2024 and beyond

Economic growth in the Southern and Eastern Mediterranean region is set to face a challenging year in 2024, with countries contending with the impacts of conflict, slowing investments, and climate-related disruptions, according to the report.

Growth is forecast at 2.1 percent for the first half of the year, rising modestly to 2.8 percent for the full year. This marks a downward revision from earlier estimates, driven primarily by slower-than-anticipated investment recovery in Egypt and the ongoing conflicts in Gaza and Lebanon.

The outlook, however, remains uncertain and depends on several factors, including the resolution of ongoing conflicts, a rebound in private and public investments, and effective responses to climate challenges. 

Severe droughts in Morocco and Tunisia, alongside energy sector disruptions in Egypt, continue to pose significant risks to the region’s growth potential.

The report underscores the urgent need for continued reforms and stabilization efforts across the SEMED region to ensure sustained economic growth in the coming years.

Egypt: Slow recovery amid energy sector disruptions

Egypt, one of the region’s largest economies, is expected to have grown by 2.7 percent in the fiscal year that ended in June, rising to 4 percent in 2024-25 as the country continues its recovery from a prolonged period of economic strain.

On a calendar-year basis, growth is forecast at 3.2 percent in 2024 and 4.5 percent in 2025, marking a steady return to pre-crisis levels, according to the EBRD.

The recovery is being bolstered by expansions in sectors such as retail, wholesale trade, agriculture, communications, and real estate. 

However, the energy sector continues to face disruptions, and inflation, while moderating, remains a challenge at 25.7 percent as of July, down from its peak of 38 percent in September 2023.

“The budget deficit stood at 3.6 percent of GDP in FY24 (fiscal year ending June) and the debt-to-GDP ratio is expected to fall to 83 percent in FY25,” the report said.

Egypt’s external accounts have recovered since the devaluation of its currency in March, with foreign exchange reserves reaching a five-year high. 

Financial inflows from international partners and investors have also provided critical support. However, risks remain, particularly with continued disruptions in energy supply and delays in structural reforms under the IMF program.

Jordan: War in Gaza weighs on economic prospects

Jordan’s economy is forecast to grow at a slower rate of 2.2 percent in 2024, with the ongoing Gaza conflict having a pronounced impact on its tourism sector and investment flows. 

The conflict has increased uncertainty among consumers, who are now holding back on large expenditures, further dampening growth. 

The EBRD said a modest recovery to 2.6 percent growth is possible by 2025, contingent on an easing of geopolitical tensions and continued progress on economic reforms.

“Jordan’s heavy reliance on imports makes it vulnerable to geopolitical instability in the region, as well as to shocks in energy and food prices and disruptions in global supply chains,” the report explained.

The country’s inflation remains moderate, standing at 1.9 percent in July, but unemployment remains persistently high at 21.4 percent, with significantly higher rates for women – 34.7 percent – and the youth population at 43.7 percent. 

The Central Bank of Jordan has maintained a stable policy interest rate, following the lead of the US Federal Reserve, as part of its efforts to preserve the currency peg.

Morocco: Agricultural struggles amid drought, tourism recovery

Morocco is grappling with severe drought, which is affecting its agricultural output — a key driver of the country’s economy. 

Growth is expected to reach 2.9 percent in 2024, with a rise to 3.6 percent in 2025, driven by a recovery in the manufacturing and tourism sectors, the EBRD forecasts.

The easing of inflation, which fell to 1.3 percent in July, has provided some relief, while exports and domestic demand continue to support economic activity. 

Morocco’s government has embarked on fiscal consolidation measures, reducing the budget deficit to 4.3 percent of GDP in 2023. The outlook for 2025 is more positive, provided that weather conditions improve and agricultural output recovers.

Downside risks remain for Morocco due to its dependence on energy imports and the vulnerabilities posed by climate change. 

Severe droughts are expected to weigh on growth in the short term, but the country’s recovery in tourism, remittances, and exports of automobiles and electric products should help sustain moderate growth.

Turkiye’s economic shift toward orthodoxy

In 2023, Turkiye reverted to more conventional economic policies, tightening monetary and fiscal measures to combat inflation. 

The Central Bank raised the policy rate by 4,150 basis points, holding it at 50 percent, while the Treasury’s efficiency package aimed to reduce the fiscal deficit, excluding earthquake-related expenses. 

The decision to forgo a mid-year minimum wage hike in July helped stabilize inflation expectations. 

Investor confidence improved with Turkiye’s removal from the Financial Action Task Force grey list, as indicated by a drop in credit default swap premiums and upgrades in sovereign ratings. The current account deficit shrank to $19.1 billion in July, while foreign exchange reserves increased to $147.9 billion. 

The economy grew by 3.8 percent in the first half of 2024, down from 4.6 percent a year earlier, with private consumption still leading growth despite a slowdown in manufacturing. 

Annual inflation fell to 52 percent in August from a peak of 75.4 percent in May, necessitating continued tight monetary policy to meet the revised inflation target of 41.5 percent by year-end. 

Economic growth is forecasted to decline to 2.7 percent in 2024, amid risks from high inflation and geopolitical tensions.

Tunisia: Modest growth but ongoing fiscal struggles

Tunisia’s economy is expected to post modest growth of 1.2 percent in 2024, rising slightly to 1.8 percent in 2025. 

While inflation has decreased to a 30-month low of 7 percent as of July, the country continues to face significant economic challenges. These include a large external debt burden, limited fiscal space, and vulnerability to external shocks, according to the report.

Despite contractions in agriculture and mining, Tunisia has experienced growth in tourism, financial services, and other industrial sectors, providing some support to the economy.

Tunisia’s fiscal struggles have been partially alleviated by an improvement in the current account deficit and higher tax revenues. 

However, the country’s reliance on external funding and its slow progress on IMF-supported programs continue to pose significant risks to its economic stability.


Half of UK businesses impacted by Middle East conflict

Half of UK businesses impacted by Middle East conflict
Updated 15 November 2024
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Half of UK businesses impacted by Middle East conflict

Half of UK businesses impacted by Middle East conflict
  • British Chambers of Commerce survey shows companies faced increased costs, shipping disruption

LONDON: Half of British businesses say they have been affected by the conflict in the Middle East, according to a survey from the British Chambers of Commerce.

The findings show that on top of the devastating human impact of the fighting in Gaza and Lebanon, the economic repercussions are being felt around the world.

Houthi militants in Yemen began attacking shipping in the Red Sea shortly after the Oct. 7 Hamas attacks sparked Israel’s war on Gaza.

The militants claim they are targeting ships linked to Israel and its allies in solidarity with Palestinians. The result has been a huge reduction in traffic through one of the world’s busiest maritime trade routes.

The BCC said shipping container rates have risen sharply since the conflict began. The cost of shipping a 40-ft (12-meter) container from Shanghai to Rotterdam has risen from just over $1,000 at the start of the conflict to just under $4,000 now. Prices peaked at more than $8,000 in July.

Most shipping companies operating between Asia and Europe have opted to send vessels around the longer Cape Horn route rather than through the Red Sea and Suez Canal.

In the survey of about 650 businesses published this week by the BCC’s Insights Unit, UK firms said the conflict had led to increased costs, shipping disruption and delays, and uncertainty over oil prices. 

Half of those asked said the conflict had affected them, compared to just over a quarter in a similar survey in October 2023. This suggests more businesses worldwide have been affected by the fighting the longer it has gone on.

William Bain, the BCC’s head of trade policy, said: “Alongside the grim human impact of the ongoing conflict in the Middle East, the situation continues to have economic reverberations around the world.

“The effect on businesses here in the UK has continued to ratchet up the longer the fighting has continued.

“If the current situation persists, then it becomes more likely that the cost pressures will build further.”

Economists have warned that while the effects on the global economy have so far been largely limited to shipping costs and delays, further escalation could have a much wider impact.

The biggest concern would be a disruption to oil and gas supplies that would lead to a surge in global energy prices, fueling inflation.


COP29 unveils Baku Call initiative to bridge climate finance and peace for vulnerable communities

COP29 unveils Baku Call initiative to bridge climate finance and peace for vulnerable communities
Updated 15 November 2024
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COP29 unveils Baku Call initiative to bridge climate finance and peace for vulnerable communities

COP29 unveils Baku Call initiative to bridge climate finance and peace for vulnerable communities
  • Elshad Iskandarov highlighted the 450 million people who live in regions simultaneously impacted by conflict and climate vulnerability

BAKU: The world’s most vulnerable communities stand at the heart of the newly launched “Baku Call on Climate Action for Peace, Relief, and Recovery,” unveiled on Friday at COP29. 

The initiative addresses the urgent need to tackle the interconnected challenges of climate change, conflict and humanitarian crises. 

Backed by key nations from both the Global North and South — including Egypt, Italy, Germany, Uganda, the UAE and the UK — it introduces the Baku Climate and Peace Action Hub as a platform for driving peace-sensitive climate actions and unlocking vital financial support for affected regions.

Speaking to Arab News, Ambassador Elshad Iskandarov of the COP29 Presidency articulated the stakes clearly, pointing to the 450 million people who live in regions simultaneously impacted by conflict and climate vulnerability. 

 

“These compounded crises not only strain existing resources but also hinder the effective delivery of climate finance,” he said. 

The Baku Call seeks to address this by providing a centralized mechanism to coordinate efforts across stakeholders — governments, UN agencies, think tanks and peace-building organizations. “The hub will serve as a unified entry point for vulnerable nations, ensuring streamlined access to climate finance and technical support,” he said.

The initiative builds on established frameworks such as COP27’s Climate Responses for Sustaining Peace and COP28’s Declaration on Climate, Relief, Recovery, and Peace, while adding practical innovations. 

Iskandarov highlighted a digital portal in development that will provide a clear overview of existing climate finance mechanisms, application requirements and best practices. 

“Imagine a country facing daily challenges of conflict, development and climate impact. Without proper guidance, navigating six to nine funding channels becomes nearly impossible,” he said. The portal aims to close this gap by strengthening national capacities and offering tools to access and manage climate funding effectively.

A central focus of the initiative lies in developing pilot projects tailored to conflict-affected areas, where conventional funding approaches often fall short. “In regions with strong non-state violent actors, we must ensure that funds reach the communities in need without falling into the wrong hands,” Iskandarov said. 

To achieve this, the hub will facilitate close collaboration with UN agencies and local communities, designing projects that integrate peacebuilding goals and adhere to stringent oversight standards.

Partnerships have been instrumental in shaping the initiative. The ambassador commended the co-lead nations for their shared commitment to inclusivity and cooperation, noting how countries such as the UAE, Egypt and the UK brought their experiences as prior COP hosts to strengthen the effort.

“This is not about initiative nationalism,” he said. “We’ve drawn lessons from the pandemic, where global unity was key, and applied them to forge a collaborative approach to the climate and peace nexus.”

The Baku Call also seeks to shift the broader narrative around climate and peace. Iskandarov expressed a long-term vision where this intersection is no longer synonymous with crisis and destruction but instead embodies hope and development. “Our ultimate goal is to create a future where the nexus of climate and peace signifies resilience and harmony, not despair,” he said.


Gulf’s record FDI inflows growing the pie for all, says Bahrain’s economic strategy chief

Gulf’s record FDI inflows growing the pie for all, says Bahrain’s economic strategy chief
Updated 15 November 2024
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Gulf’s record FDI inflows growing the pie for all, says Bahrain’s economic strategy chief

Gulf’s record FDI inflows growing the pie for all, says Bahrain’s economic strategy chief

MANAMA: Gulf countries’ success in attracting foreign investments is a win-win for the region, a senior business strategy expert has told Arab News.

In an interview on the second day of the Bahrain International Airshow, Nada Al-Saeed, chief of strategy at the Bahrain Economic Development Board, described the Middle East’s growing ability to attract funding as “fantastic,” noting that it brings greater attention to the region.

In 2023, Saudi Arabia secured foreign direct investment inflows of SR96 billion ($25.6 billion), 16 percent higher than its target amount, while Bahrain received a record $1.7 billion over the same period, marking an 55 percent annual increase.

“When Saudi Arabia or the UAE does very well, it means that we could also benefit from that. I think that we often see the region as very competitive. I like to see it as a very collaborative and I think that everybody could benefit. If the pie gets larger, each individual’s share will also get larger.” she said. 

Reflecting on Bahrain’s FDI increase, Al-Saeed said that figure relates to the Economic Development Board’s achievements.

“If we are looking at the foreign direct investments’ statistics and results, we will see Bahrain actually attracted a much larger number than that, but this represents a record number for the EDB,” she said.

Nada Al-Saeed, chief of strategy at the Bahrain Economic Development Board. Supplied

Al-Saeed noted that funding secured in 2023 went to investment projects across all of Bahrain’s priority sectors, which include financial services, communication and technology, and manufacturing, as well as logistics and tourism,

“These are the key priority non-oil sectors identified by the government, and they are the focus of the EDB. The board has dedicated teams for each sector to promote and attract investments in these areas,” she said.

She also said that these projects have contributed to job creation in the country, and she expected this investment trend to continue.

Explaining how her organization’s strategy aligns with the country’s economic vision for 2030, Al-Saeed said that the EDB, as the nation’s investment promotion agency, works very closely with a wider ecosystem of stakeholders known as “Team Bahrain.” 

This group has tailored its investment promotion strategies to mirror the government’s national economic plans.

“Back in October 2021, the government launched the economic recovery plan where it identified key priority sectors, and the EDB aligned to that in order to ensure that we operate as a cohesive unit, and we are able to attract the right investments that will further stimulate the development and growth of our country,” the chief officer said.

Discussing the unique advantages Bahrain offers, Al-Saeed highlighted the country’s success over the past decades in attracting regional investors that now play a vital role in the nation’s economy.

“If we look at our foreign direct investment statistics, we will see the majority of our foreign investments come from the GCC region, and that is predominantly in the financial services sector, and this is a trend that we have seen since the 70s, where Bahrain managed to attract a lot of regional capital in the financial services sector from Saudi Arabia, Kuwait, the UAE, and others, of course.” she said.

“There are many advantages because we treat GCC investors like Bahrainis when it comes to the processes of establishing business activities,” Al-Saeed added.

In addition, Bahrain has a wide range of incentives that are offered to investors.

One of these is the work of the country's labor fund, Tamkeen, which offers businesses the opportunity to support hiring local talent, as well as training and upskilling them to meet the needs of those companies.

Al-Saeed highlighted recent regulatory changes aimed at making Bahrain more attractive to global businesses and startups, and emphasized that significant efforts have been made to ensure the state remains both competitive and conducive to investments and business growth.

“Maybe one of the key, or most recent initiatives that is worth highlighting, is the Golden License program that was launched back in April 2023, which aims to provide streamlined services to strategic investment projects that are valued at $50 million or that creates 500 jobs here in Bahrain,” she said.

The chief officer added that through this initiative, projects and companies can benefit from expedited services when it comes to getting approvals, licenses or even access to decision makers. 

“This has been very instrumental in terms of ensuring that we provide high-class services to investors,” said Al-Saeed, noting that nine projects have been granted Golden License status since the initiative was launched.

She further said that the total of those projects is valued at $2.4 billion, with investors coming from various sectors and different regional and global countries, including Bahrain.

In response to a question about the role of the aviation sector in the EDB’s investment strategy,  Al-Saeed stated that it helps create a conducive investment environment, as it is what connects Bahrain with the rest of the world.

“This is not just in terms of the movement of people but also in transporting goods and service through air cargo. So, it is very important; as we do not target just the market that is within our geographic boundaries, but we aim to serve a much wider area and catchment area,” she said.


Saudi Arabia’s demand for apartments pushes new mortgages over $16bn

Saudi Arabia’s demand for apartments pushes new mortgages over $16bn
Updated 15 November 2024
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Saudi Arabia’s demand for apartments pushes new mortgages over $16bn

Saudi Arabia’s demand for apartments pushes new mortgages over $16bn

RIYADH: Banks in Saudi Arabia granted SR60.92 billion ($16.24 billion) in residential mortgages in the first nine months of 2024, an annual rise of 4.88 percent.

The data was released by the Saudi Central Bank, also known as SAMA, and it showed the bulk of the loans — constituting 64 percent or SR38.85 billion — was allocated for house purchases.

This segment did witness a 3.38 percent dip year on year, with its proportion of total loans shrinking from the 69 percent seen during the same period of 2023.

Demand for apartments surged, capturing 31 percent of total mortgages, up from 25 percent a year ago, as this category of lending reached SR18.6 billion.

This shift represents a 26.8 percent growth, underscoring the increasing preference for apartment ownership amid urbanization and demographic changes.

Additionally, loans for land purchases showed a promising trajectory, achieving an annual growth rate of 8.26 percent and amounting to SR3.5 billion, which signals a sustained interest in land investment across the Kingdom.

The rise in new residential bank loans across Saudi Arabia is being driven by a blend of population growth, evolving mortgage policies, and increasing interest in apartment living.

According to a recent report from online real estate platform Sakan, the Kingdom’s population surged by four million over the past five years, with demand for housing climbing in response.

While this trend fuels the broader housing market, apartments have become a prominent focus, reflecting changing demographics and affordability needs.

The growth of the expatriate population, which expanded from 9.9 million in 2010 to 13.4 million in 2022 and now makes up over 40 percent of the population, also adds pressure on the rental market, particularly in major cities.

The government’s push for greater home ownership through buyer-friendly mortgage policies is helping fuel this apartment demand. 

Favorable mortgage options and the recent introduction of the Premium Residency Visa, often dubbed the “Saudi Green Card,” allow foreign investors to enter the market with purchases over SR4 million, fostering interest in upscale residential investments.

Additionally, the value proposition of apartments is clear, as with SR1 million, buyers can access apartment sizes that vary by city — for instance, around 131 sq. meters in North Riyadh to a more spacious 333 sq. meters in Dammam, according to the report.

Saudi Arabia’s liberalized foreign ownership policies and affordable mortgage terms further boost demand, particularly for apartments in desirable areas.

The high rental yields offered by apartments in Saudi Arabia also attract investors, with two- and three-bedroom apartments in Riyadh delivering yields of 9 to 10 percent, and even higher returns in Jeddah, where a two-bedroom unit yields 11.7 percent.

These returns are notably higher than apartment yields in neighboring Gulf cities, where they average between 5 to 6 percent in Dubai, Abu Dhabi, and Doha.

High rental yields not only make apartments attractive as long-term investments but also help offset rising property costs, driving both end-users and investors to favor this category in a market characterized by shifting residential preferences.

According to the report, the surge is also driven by the rapid evolution of real estate technology.

Platforms like Sakan are reshaping the real estate landscape by enhancing transparency, streamlining property transactions, and providing data-driven insights for buyers and investors alike.

Leveraging local knowledge and international expertise, these platforms are supporting the sector’s growth by simplifying access to property listings, improving market transparency, and facilitating faster transaction times.

As property technology continues to integrate into the Saudi market, it is poised to play a pivotal role in sustaining the momentum of residential lending and meeting the needs of a tech-savvy, expanding population.


Saudi Arabia’s official reserves reach $457bn, up 4%

Saudi Arabia’s official reserves reach $457bn, up 4%
Updated 15 November 2024
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Saudi Arabia’s official reserves reach $457bn, up 4%

Saudi Arabia’s official reserves reach $457bn, up 4%

RIYADH: Saudi Arabia’s official reserve assets reached SR1.71 trillion ($456.97 billion) in September, marking a 4 percent increase year-on-year, according to new data.

Figures released by the Saudi Central Bank, known as SAMA, show these holdings include monetary gold, special drawing rights, the International Monetary Fund’s reserve position, and foreign reserves.

The latter, comprising currency and deposits abroad as well as investments in foreign securities, made up 94.5 percent of the total, amounting to SR1.62 trillion in September. This category grew 4.11 percent during this period.

September data indicated that special drawing rights rose to SR79.86 billion, marking a 4.18 percent increase and reaching the highest level in two and a half years. SDRs now account for 4.66 percent of Saudi Arabia’s total reserves.

Created by the IMF to supplement member countries’ official reserves, SDRs derive their value from a basket of major currencies, including the US dollar, euro, Chinese yuan, Japanese yen, and British pound sterling. They can be exchanged among governments for freely usable currencies when needed.

SDRs provide additional liquidity, stabilize exchange rates, act as a unit of account, and facilitate international trade and financial stability.

The IMF reserve position totaled around SR12.64 billion, but decreased by 11.45 percent during this period. This category represents the amount a country can draw from the IMF without conditions.

Saudi Arabia’s official reserves have been a fundamental pillar of the nation’s economic stability and are closely tied to its strategic investments in foreign securities.

The Kingdom’s reserves include an extensive portfolio of foreign assets, diversified across currencies and geographies, ensuring the country has a robust financial buffer against global economic uncertainties.

This prudent reserve management has helped Saudi Arabia maintain a resilient fiscal position and a strong credit rating, affirmed at “A/A-1” by S&P Global, which recently upgraded the Kingdom’s outlook to positive due to its sustained reform momentum.

In alignment with Vision 2030, Saudi Arabia has adopted an expansionary fiscal policy to support transformative projects aimed at reducing its economic dependence on oil.

This ambitious agenda has led to budget deficits and prompted the country to tap into debt markets to finance key infrastructure and social initiatives.

Despite the uptick in debt, the Kingdom remains fiscally well-positioned, with ample reserves and substantial net assets, projected to stay above 40 percent of GDP through 2027 according to S&P Global.

This buffer underscores Saudi Arabia’s capacity to absorb potential economic shocks while continuing to pursue its development goals.

The nation’s significant reserve base not only underpins its economic stability but also provides the flexibility to recalibrate spending on large infrastructure projects as needed, maintaining a balance between growth and fiscal discipline.

This strategy is essential as Saudi Arabia seeks to nurture its non-oil sectors, supported by the Public Investment Fund and other governmental entities.

The PIF’s role in fostering a diversified economy is central to Vision 2030’s objectives, from investment in renewable energy to technology and healthcare, creating a more resilient and diversified economic base.

With the positive outlook and strategic focus on sustainable growth, Saudi Arabia’s economic reforms are expected to drive strong non-oil growth over the medium term, further cementing the Kingdom’s fiscal stability and enhancing investor confidence in its long-term economic vision.