Multiple crises in Arab world make economic recovery difficult

Across the region, economic conditions are gloomy, living standards are declining, prices are rising and currencies are faltering.

Axel Rangel Garcia

As the world moves away from oil, the region must move its national economies into a new era. But for most states, their starting position is far from ideal. Where and how should they change?

Multiple crises in Arab world make economic recovery difficult

Amer Ziab Al-Tamimi

last update on 30 Jan 2024

The Arab world entered 2024 in crisis.

There are ongoing military conflicts in Gaza, Sudan, and the Red Sea. There is civil strife in Syria, Yemen, and Libya. Even Pakistan was recently bombed by Iran (it bombed back, and then they shook hands).

Lebanon’s economy is broken. Egypt, Jordan, and Tunisia are saddled with debt. Algerians are jobless and hungry. Iraq’s government can't govern. And Palestinians are further from a state of their own than at any other time.

Across the region, economic conditions are gloomy, living standards are declining, prices are rising, currencies are faltering, development prospects are lacking, labour markets are turbulent, and unemployment is high.

Political leaders and their economic administrators are facing key questions. The answers they find will go some way to defining the fortunes of their countries and the wider region.

Reuters — People fleeing violence in West Darfur cross the border into Adre, Chad, on 4 August 2023.

Crucially, how can they lift people out of misery, improve their living conditions, enable them to create wealth, and enhance opportunities for sustainable development?

There is no doubt that the challenges are difficult and the obstacles numerous. The creativity and development that can boost productivity, investment, and economic growth are still missing.

Growth and hope

The Arab Investment and Export Credit Guarantee Corporation’s annual report for 2023 put growth for the year among Arab economies at 1.8%.

The organisation, set up in 1974 and based in Kuwait, has a strong reputation. It pointed out that Arab growth was below last year’s wider global rate of 3%.

The creativity and development that can boost productivity, investment, and economic growth are still missing.

It was, however, more optimistic about 2024 for a region in which nine oil-producing nations generate about 78% of the region's gross domestic product (GDP). The research found Arab regional growth could reach 3.6% in 2024, doubling in a year. That would help turn around a 4.7% drop in GDP per person of $7,482 for 2023, lifting it by 1.2% to $7,573.

This outlook is based on government data and statistics from the World Bank and the International Monetary Fund (IMF). Forecasting economic patterns is tricky since outlooks are subject to specific risks, and Arab economies are not uniform.

Rich and poor

Some are well-developed and long-established, producing high volumes of products with good growth prospects, likely boosting that country's per-person GDP rates.

Most prominently, Saudi Arabia is in the G20 club of wealthy nations, with a 2023 GDP of $1.1tn, representing almost a third of the Arab-wide economy.

Shutterstock — An Arab businessman trading stocks

Conversely, some economies seem stuck in crisis, producing little added value, with low living standards. Sudan, Yemen, Somalia, and Mauritania have a GDP of under $30bn. Syria's was just $7bn, and although Libya is an oil exporter and a member of OPEC, it had a GDP of just $44bn in 2023.

Political and security problems have a big impact on small economies. Such turbulence makes it less likely that nations can establish the conditions needed for growth and investment.

Political and security problems have a big impact on small economies. Such turbulence makes it less likely that nations can establish the conditions needed for growth and investment.

Companies looking to invest want stability. This is needed to support the private sector in creating wealth, improving productive capacities, and boosting various sectors, from agriculture to manufacturing and services.

Transparent political administration and economic regulation provide stability, as does harmonised decision-making on plans and strategies to boost growth.

Structural reform

Analysts debate whether all Arab countries have the conditions needed to devise and implement development strategies.

DPA — Lebanese soldiers secure a local bank as a depositor displays a banner that reads: 'Bankers live in heaven while depositors live in hell'

The region is not short of visions for the future. These frequently feature set goals and dates, perhaps over a five-, ten-, or even 20-year period, yet some national economic plans are fanciful and overly ambitious.

For instance, diversifying an economy, raising exports, or boosting the conditions in manufacturing or agriculture is easier said than done.

Without the structural reform that can help make change a reality, can Arab economies really deliver the kind of growth hoped for in 2024? It can take years to attract the right resources and human capital needed to drive sustained development needed to lift living standards.

Figures tell a sorry tale. Business is not booming. According to the Arab Investment and Export Credit Guarantee Corporation, Arab trade in goods and services contracted by 5.7% in 2023.

Exports declined by 7.9% from 2022, and imports declined by 0.4%. The value of Arab trade - 'exports' plus 'imports' - is about $3tn. The trade surplus declined by 39% to $262bn.

A drop in oil prices significantly impacted the value of Arab exports, which are dominated by energy. This highlights the importance of diversifying away from fossil fuels and boosting alternative sectors.

The Corporation's 2023 report shows that the current account surplus of the Arab world dropped by 52.3% last year to $180bn. This represents 5.3% of the region's total GDP.

Despite this, Arab states could still take their foreign currency reserves past the $1tn mark last year. This hard currency could come in handy if global markets need resuscitating again.

AFP — The economy of Iraq relies on oil exports, like many others in the Middle East and the Gulf.

Spend it wisely

For many states, it would be prudent to invest in improving production and export capacity and diversifying sources of national income.

Arab countries face unprecedented economic challenges. Notably, the world is decarbonising. This makes economic liberalisation and moves to strengthen other sectors all the more critical.

Some states have boosted their tourism sectors, such as by improving hospitality. But better basic industries and boosted production capacity are essential, too — manufacturing and agriculture matter when seeking a competitive advantage.

Education must also be modernised to meet the technological, scientific, and cultural changes in developed and emerging countries. There are important questions about how this happens.

Alongside this are other social developments, such as controlling population growth or liberating Arab culture from prevailing conservatism. Throughout all of this, every opportunity for peace must be grasped. There is no higher priority than saving the Arab world from war and conflict.

Prosperity seldom reigns while bombs rain down.

+ / -