The economic outlook for the Middle East Presentation for the JCCME Conference, Doha 27 August 2012 Edmund O Sullivan MEED Edmund O Sullivan Edmund.osullivan@meed-dubai.com
The Middle East is at a generational turning point. The Middle East in general and the Arab world in particular is at a political and economic turning point unparalleled since the 1979 Iranian revolution and one as important as the changes that followed British and French withdrawal from the region in 1945-62. Potential outcomes range from a long period of political turbulence and economic stagnation to an era of sustained economic and social progress. THERE ARE FEW CERTAINTIES ABOUT THE NEXT DECADE
Factors driving the region include The declining capacity of central government. Economic change mainly driven by population growth and youth. The consequences of foreign interventions in the Middle East including the Gulf reflagging campaign, the Kuwait Crisis, the Lebanon crisis, the 2001 invasion of Afghanistan and the 2003 invasion of Iraq. The failure of the Arab-Israel peace process launched in 1991. The declining capacity of the US to intervene in the Middle East and Islamic world. Russia s economic recovery, the rise of China as a global economic power and the emergence of Turkey as a force in regional events. Generational change in the leadership of Arab countries. The rise of new political forces in the Arab world, notably the Muslim Brother and associated movements which will dominate the Arab political debate for a generation. The Iranian challenge to the regional status quo.
The intellectual framework to support effective ME action Recognise the new facts. Identify long-term structural factors upon which to build your regional strategy. Take into account irresistible local factors and actors. Adapt to the impact of new global and regional players. Don t expect technology to make your job easier. Engagement and commitment are vital.
Fact 1: there may be no longer be such place as the Middle East Economies vary: Saudi Arabia has more than 20 per cent of world oil; Qatar has about 14 per cent of world gas. Morocco and Jordan have effectively no hydrocarbon reserves. Systems of government differ. The region is divided by distance, desert, religion, tribe, history and language. To succeed in the region companies need to be nuanced, flexible, pragmatic and consistent. Developments in 2011/12 have increased the gap between the GCC and the rest.
No region on earth has such a wide and growing income gap Qatar Kuwait UAE Bahrain Oman Saudi Arabia Libya Lebanon Iran Algeria Jordan Tunisia Iraq Morocco Syria Egypt Sudan Yemen Mauritania Djibouti The disparity between the oil-rich GCC and the rest of the region has increased in 2011 and gap is likely to remain throughout the next decade 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 2011 2010 Source: IMF GDP per capita ($)
Fact 2: The GCC has become more influential since 2010 4000 GDP ($ billion) 3500 3000 2500 2000 1500 Source: IMF Non-GCC GDP (14) 1000 500 GCC GDP 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Non-GCC GDP are Algeria, Djibouti, Egypt, Iran, Iraq, Jordan, Lebanon, Libya, Mauritania, Morocco, Sudan, Syria, Tunisia
The GCC is the starting point for your strategy in the Middle East.
The five factors that support GCC growth Oil and gas Oil price to average $100 a barrel/plus World oil demand growing by about 1 per cent a year Buoyant gas demand Economic diversification Population growth Globalisation Governance. GCC has mainly avoided or contained Arab Spring. The region remains largely subject to non-military rule.
Fact 3: no sign that world energy or oil demand is falling 95.00 90.00 World oil demand (million b/d) % change year-on-year 5.00 4.00 85.00 3.00 80.00 2.00 75.00 1.00 70.00 0.00 65.00-1.00 60.00-2.00 Source: OPEC
OPEC covered 24 per cent of increase in world oil demand 34.00 Total call on OPEC crude OPEC crude oil production 32.00 30.00 28.00 26.00 24.00 Source: OPEC 22.00
Oil price was flat until 2004 and has since soared 140.00 OPEC basket price ($ a barrel) 120.00 100.00 80.00 But 5 per cent nominal oil price growth since 1995 60.00 40.00 20.00 Source: OPEC 0.00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
No reason to suppose fall in demand for GCC oil However US energy policy is producing major change in the structure of American oil and gas supply and demand. This is reducing the US demand for Middle East oil, and consequently, Middle East influence in the US...In contrast, Chinese dependence upon Middle East oil is growing.
The result:gcc has been world s most buoyant region 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 - GCC GDP ($ billion) GCC $ dollar GDP grew by almost 12.5 per cent pa 2000-11 GDP has almost quintupled in this period from more than $350 million to almost $1,400 million this year. GDP conservatively forecast to grow by about 7 per cent annually to 2016 Source: IMF
The GCC on average is solvent and liquid 300 250 200 150 100 50 GCC current account surpluses 2000-16 ($ billion) GCC countries have accumulated almost $1.5 trillion in surpluses since 2000 Debt is low GCC states are forecast by the IMF to generate at least $1 trillion worth of surpluses 2011-16. This is more than enough to finance all foreseeable infrastructure requirements and support continuing external investments 0 Source: IMF
The GCC itself is diverse and divided 2000 1800 1600 1400 1200 1000 Oman Bahrain Kuwait Qatar 800 UAE 600 400 200 Saudi Arabia 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
GCC project market is rebounding in 2012 180 Value of contract awards ($ billion) 160 140 120 100 80 60 40 20 0 2009 2010 2011 2012 Source: MEED Projects
The Three key markets.. Saudi Arabia By far the largest economy in the Middle East Solvent, liquid and comparatively well-managed Ageing leadership but increasingly autonomous meritocracy Ambitious business sector looking for opportunities at home and abroad Growing pressure coming from regions Result is a huge wave of investment and growing concern about delivery capacities
Economic trends are very positive Nominal GDP ($bn) Current account $bn 600 140 Source: IMF 500 120 100 400 80 300 60 200 40 100 20 0 2005 2006 2007 2008 2009 2010 2011 0 2005 2006 2007 2008 2009 2010 2011
The UAE is second market for many Dubai has completed one of history s most successful debt recovery plans A large proportion of the cost has been shouldered by Abu Dhabi Review of Abu Dhabi plans is being completed but is likely to involve fewer visionary projects and more focus on the needs of local and national populations Growth is consequently like to be less robust more sustainable than in 2004-09.
Qatar comes in third Euphoria following FIFA 2022 World Cup win has given way to a realistic reassessment of Qatar s capacity to deliver massive projects in the next eight years. Pause for serious thought must eventually come to an end. The autumn to be a critical period and will shape the next decade.
Qatar s growth story is unprecedented 250000 GDP at current prices ($ million) Source: IMF 200000 150000 100000 50000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E2012F2013F2014F
Qatar has generated surpluses since 1998 400,000 Current account 350,000 Current account cumulative 300,000 250,000 200,000 150,000 100,000 50,000 0-50,000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: IMF
What makes Qatar unique 2500 2000 LNG production (b/d equivalent) Crude oil and associated gas condensate production ( 000 b/d) 1500 1000 500 Source: MEED 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 But growth rate is now slowing 70 GDP growth 45 Growth (3-year rolling av) 60 40 50 35 40 30 30 20 10 25 20 15 10 0 5-10 0-20
$bn The Qatari projects market performance Total contract awards in Qatar, 2006-11 35,000 New contract awards have halved since the peak year of 2006, but have edged up from the 2009 low, reaching an estimated $15bn in 2011 30,000 25,000 20,000 15,000 10,000 5,000 0 2006 2007 2008 2009 2010 2011 Source: MEED Projects
The Qatari projects market performance Breakdown of 2011 contract awards by key sectors ($m) Three sectors accounted for over 90 per cent of contract awards in 2011 4,500 6,500 Construction Infrastructure Power 500 3,000 Oil & gas production Source: MEED Insight
$m The Qatari projects market outlook Breakdown of unawarded infrastructure contracts in Qatar Qatar has over $120bn of announced and planned non-oil and gas projects that have still to be awarded, with the majority set to take place in the transportation sector 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Rail Roads Water & waste Buildings & real estate Power Airports & ports Source: MEED Insight, MEED Projects
Other GCC Oman is about to launch the $20bn Kazzan Deep oil project; pushing hard for more jobcreation and becoming increasingly open to international and regional engagement Kuwait s massive reserves support healthy operational indicators but politics is slowing progress Bahrain s effective integration into Saudi Arabia offers the best long-term economic opportunities for business and workers.
GCC summary The GCC is the largest and most important element of the Middle East economy On average, the region has grown robustly and is solvent and liquid Events in 2011/12 have marginally affected the GCC as a whole and have raised its regional and global significance. Provided a large oil price crash is avoided, 2012 should see general economic growth in the GCC and strong growth in the projects sector. Can it complete important economic integration programmes: power; transport and trade? And will GCC stability withstand yet more regional shocks?
Non-GCC Arab Middle East Main focus of Arab Spring Tunisia Egypt Yemen Syria Smaller manifestations in Algeria, Morocco, Jordan and Iraq Systems generally based on military/security force rule, with exceptions Morocco, Libya Jordan, Lebanon They are being forced to accommodate new forces, principally MB-related parties
Whole of the non-gcc Arab Middle East hit by 2011 But some are doing better than others: Iraq Algeria Libya..and Egypt s position remains unclear.
Iraq: uncertainty but high potential Iraq has now emerged as the Middle East market with the greatest business potential outside the GCC. Sentiment is being driven by record oil revenues and plans to lift oil production to 12 million b/d in 2017. Competition between the centre and the periphery is becoming an increasing issue Violence in Baghdad and other parts of Iraq is a continuing threat to the conduct of normal business.
1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Iraq oil production since 1965 (000 b/d) 4000 3500 3000 2500 2000 1500 1000 500 0
IMF forecasts GDP to double by 2017 and surpluses GDP ($bn) Iraq current account (bn) 250 30 25 200 20 15 150 10 100 5 0 2005200620072008200920102011201220132014201520162017 50-5 -10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017-15 Source: IMF
The Kurdistan region poised to be the Abu Dhabi of the north 300,000 b/d of production now Aiming for 2 million b/d in 2017 Aiming for 3 million b/d of oil passing through its territory Looking for gas deals with Turkey. Poised to grant sovereign guarantee for project finance
Libya: uncertainty but high potential Extreme violence in 2011 will leave a lasting legacy. Successful first free elections is only the first step in a long process of political and economic reform. Government being formed. First issue is the freeze on Qaddafi era contracts and role of armed militia. Potential for political degeneration is high.
It will take five years to recover from 2011 120 Libyan GDP ($bn) Source: IMF 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Algeria: energy industry and stability Arab Spring movement contained. Enjoying boom in oil and gas revenues. Government is stepping up investment.
Algerian GDP has doubled in less than 10 years 300 Algerian GDP at current prices, 2000-17 ($ billion) 250 200 150 100 Source: MEED 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
And has enjoyed a surplus throughout the same period 40 Algerian current accout surplus ($bn) 35 30 25 20 Source: MEED 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Oil output has peaked 2500 Algerian oil production since 1990 (000 b/d) 2000 1500 1000 500 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Egypt is critical in the long-run The most populous Arab state has entered a new era in which populist Islamism will be the main influence on national life. Stability has been maintained but economic price of the events since the start of 2011 is high. Security forces/military are being forced to accommodate rather than repress Muslim Brotherhood.
The Arab Spring has hit Egypt s growth 400 Egypt's GDP ($bn) 350 300 250 200 150 Source: MEED 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
and has intensified balance of payments problem 4 Egypt current account $bn 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017-2 Source: MEED -4-6 -8
Iran at the centre of international concerns about the ME US position on nuclear issue will remain unrelenting Israel unlikely to embarrass Washington Issue is polarising attitudes in the Arab world Confrontation over nuclear power is spilling into other areas in the region Issue is accelerating investment in transport projects that avoid the Strait of Hormuz.
Growth to be robust, though sanctions raise questions 800 Iran GDP ($bn) 700 600 500 400 Source: MEED 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
And its financial position will be solid. 60 Iran current account ($bn) 50 40 30 20 10 Source: MEED 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Iran s oil potential constrained by sanctions 7000 Iran oil production since 1965 (000 b/d) 6000 5000 4000 3000 2000 1000 0
Other countries Morocco still struggling with unbalanced economy and high levels of rural poverty. Tunisia is pondering its future. Levant in torment and Palestinian state now off the agenda for foreseeable future. Horn of Africa needs stability and order Yemen offers possible model for divided Arab states.
Thank you Edmund O Sullivan edmund.osullivan@meed.com 00 97150 559 2217 Meed.com