MENA economic growth engine falters - refuel or renew

Key points

• The coronavirus pandemic and the related oil price slump is a double whammy for economies in the Middle East and North Africa (MENA). While financially still highly dependent on the global oil market that has tanked, the countries have also been diversifying towards the tourism sector, which is severely affected by the coronavirus outbreak.
• A new oil market boom that could refuel the economies may be some time away and will not last in the long-run, as the global energy transition gains momentum. Meanwhile, public debt overhang continues to increase and requires urgent fiscal consolidation. Structural job losses and low capital investment could harm the region’s economic growth potential.
• It is time for the economic model to be renewed and made more sustainable via acceleration of broad-based economic diversification efforts and a boost in technological innovation. Among stepping-stones identified in this crisis is pharmaceuticals. North African economies could also build on the ongoing shift to higher tech manufacturing and expansion of their trade networks.
• The region’s growing interest in renewable energy projects needs to be taken to the next level, with investment in renewable energy capacity at the core of the economic renewal process. By providing a green way to satisfy the continued increase in local energy demand, fossil fuels could be freed up for the export market, reducing the risk of stranded assets in the transition period.