empowerME monthly newsletter

As we say farewell to 2022, and welcome 2023, let’s talk about the Middle East economy, in a nutshell. Generally, this past year has been fairly challenging, not just for the region, but globally as well. As the world attempted to recover from the long-lasting effects of the pandemic crisis, the war in Ukraine started, creating immediate tensions in food and energy prices around the world.

Meanwhile, the climate agenda will continue to dominate the discussion across the MENA region, with an exceptional occurrence where two MENA countries are leading the COP presidency in two consecutive years. Egypt will hand over its COP27 presidency to the UAE at COP28, in November 2023 in Dubai.

The Conference of Parties (COP27) of the United Nations Climate Change Framework Convention (UNFCCC) took place in Sharm El Sheikh, Egypt, earlier this month. An estimated 35,000 delegates from over 190 countries participated in this high-level event. Numerous leaders from around the world also attended the event, including the Secretary General of the United Nations, the President of the United States, the President of the European Commission, the President of the United Arab Emirates, the Crown Prince of Saudi Arabia, and many others.

So, what are the main outcomes of COP27, and what do they mean for the Middle East and North Africa (MENA) region?

Egypt is one of the main MENA countries already suffering the effects of the global economic slowdown. A couple of days after the meetings, IMF Chief Kristalina Georgieva announced an agreement with the Egyptian authorities, subject to approval by the IMF Executive Board in December, on comprehensive economic policies and reforms to be supported by a 46-month Extended Fund Facility (EFF) Arrangement of $3 billion. In return, Egypt will be committed to implement a durable flexible exchange rate policy, expand targeted social protection, and anchor private sector engagement.

So, would the new IMF deal resolve Egypt’s existing economic problems? The short answer is no. These policies may be necessary, but they are certainly not enough.

Education has been a key indicator of an economy’s growth in innovation and technology for the last 500 years from the Dutch Empire in the mid-17th century to the British Empire in the late 19th century to the United States in the 20th century to China’s awakening in the last several decades. Investment in education has been the foundation of societal and economic transformation and has led to significant long-term gains.

By investing in cost-efficient renewable energy, MENA countries can significantly reduce their extremely expensive energy subsidies, freeing funds for use in education and social welfare for the advancement of their populations.

The Middle East and North Africa (MENA) region is home to the largest hydrocarbon reserves in the world, with the Organization of the Petroleum Exporting Countries (OPEC) member countries possessing almost 60 percent of global crude oil reserves, and 43 percent of global gas reserves. This places the region as a key global player for oil and gas for the foreseeable future.

By investing in cost-efficient renewable energy, MENA countries can significantly reduce their extremely expensive energy subsidies, freeing funds for use in education and social welfare for the advancement of their populations.

The recent war in Ukraine has exacerbated the existing inflationary pressures in the Middle East and North Africa (MENA) region. Based on IMF estimates, the inflation rate in MENA went up from an average of 7.3% in the 2000-2018 period to 14.8% in 2021. Inflation reached particularly high levels in Lebanon, Algeria, and Tunisia.

The MENA countries that have been most affected by the recent inflation spike are the heavy commodity importers and those facing existing economic challengesSo why are heightened inflation rates particularly alarming in MENA, compared to other regions?

Egypt is preparing to host COP 27 in November 2022 in Sharm El Sheikh. The country is expected to receive delegations from numerous countries, in addition to representatives from a wide variety of international organizations, corporations, and non-governmental agencies. As part of preparations for the conference, the Egyptian government and several NGOs have spent millions of dollars to help make Sharm El Sheikh a “green city.”

To address this, MENA countries need to treat climate change as a complex, multifaceted, and interconnected threat, that will not only affect quality of life in these countries, but also have complex and far-reaching multiplier effects on the economic and social fabric of the region.

Reflecting on my recent travels to several countries in the Middle East, the mood in the business community can best be described as cautiously optimistic. While most industry leaders are concerned about inflation and an expected slowdown in demand, they generally feel that the region is better positioned to withstand the volatility. Executives assert this applies to the GCC, where a historically high revenue surplus is replenishing government coffers. Non-oil based economies are also expected to benefit from the spillover effect of continued growth and investment by the oil-based countries in the region.

As the pandemic-fueled liquidity begins to wane and the reality of inflation and higher interest rates sets in, many economies will face considerable challenges. MENA countries are vying to attract global investors and increase FDI, and yet capital flows are reversing from emerging markets to rich countries, specifically the United States, where interest rates are rising to levels not seen since 2018.

Several MENA countries continue to take bold steps to improve their global competitiveness. Those that maintain their momentum will be clear winners in the coming years. History is rich with evidence that periods of economic challenges are followed by periods of historic gains.

We launch our WIn (Women Innovators) Fellowship this month with the inaugural cohort of women entrepreneurs in Saudi Arabia. The WIn Fellowship aims to support women entrepreneurs to increase their chances of success by providing them with the managerial tools, mentoring, and people to people ties to scale their businesses. Our vision is to develop a regional network of WIn Fellows who support one another, build enduring companies, and enact better policies and programs for the advancement of women in business.

Salesforce’s CEO in India, Arundhati Bhattacharya, recently sounded the alarm on the skills shortage in the IT sector, calling it a “crisis.” She was highlighting the increasing competition for workers as more companies accelerate their transition to digital. Interestingly, her biggest competitors are not other large multinational firms but rather well-funded startups. One might assume that this is because India’s youth population (the largest in the world at approximately 600 million) has an entrepreneurial culture of risk taking.

In addition to asking whether young people in MENA have a risk-taking attitude, we should be asking: Is their downside risk acceptable?

This January, two transactions indicated the potential for MENA’s smaller economies to participate meaningfully in the global economy and drive economic growth: Bahrain-based cryptocurrency exchange Rain and Tunisia-based artificial intelligence company InstaDeep raised record-breaking financing rounds by international investors. To put their funding into perspective, Rain’s $110 million financing round accounts for 11 percent of Bahrain’s foreign direct investment in 2020, while InstaDeep’s $100 million financing round accounts for 15 percent of Tunisia’s.