The Middle East and Africa (MEA) region’s growth prospects in 2023 face significant downside risk due to a potential global economic slowdown impacting exports. Lower oil production, high inflation, tighter monetary policies, increased borrowing costs, and the rising cost of servicing debt continue to strain the region’s finances. Against this backdrop, the risk score of the region increased from 54.3 out of 100 in Q4 2022 to 54.4 in Q1 2023 update, reveals GlobalData, a leading data and analytics company.
In the 20th update version of GlobalData’s “Global Risk Report Quarterly Update – Q1 2023,” which evaluated 56 countries in the MEA region, two countries were identified in the very low-risk zone, four countries in the low-risk zone, 11 countries under manageable risk, 19 countries under high risk and 20 countries in the very high-risk zone.
Ramnivas Mundada, Director of Companies and Economic Research at GlobalData, comments: “The Gulf Cooperation Council (GCC) nations recorded robust growth of 6.3% in 2022, which is projected to slow down to 2.3% in 2023 mainly due to oil production cuts. However, the non-oil sector will continue to support growth due to the robust performance expected in tourism and construction.
“Economic growth in Africa is projected to slowdown from 3.5% in 2022 to 2.9% in 2023, with a significant slowdown expected in South Africa (0.2% in 2023 vs 2.1% in 2022), Nigeria (2.8% vs 3.1%), Algeria (2.8% vs 3.1%) and Egypt (4.1% vs 6.6%). The region faces various challenges, including a food crisis, high price levels, rising debt servicing costs due to higher interest rates, and lower levels of investment. These factors pose significant risks to Africa’s economic outlook.”
Out of 153 nations, Angola, Liberia, Mauritania, Sierra Leone, Democratic Republic of the Congo, Chad, Libya, Burundi, Mozambique, Syria, and Yemen were in the list of top 15 highest-risk nations in the GCRI Q1 2023 update.
The Horn of Africa* is currently grappling with a dire humanitarian crisis and widespread food insecurity caused by conflict, economic shocks, and consecutive poor rainy seasons. The World Food Programme has issued a warning about the ongoing high levels of need, and the Integrated Food Security Phase Classification (IPC**) estimates that as of June 2023, approximately 147.3 million people are in Phase 3 or worse, indicating severe food insecurity. Immediate and decisive measures are necessary to avert famine and address the urgent hunger crisis in the region.
Meanwhile, the Israel-Palestine conflict has garnered significant international condemnation due to the ongoing conflict. The situation remains highly tense and precarious, with no immediate resolution in sight.
In a positive development, Bahrain and Qatar resolved their diplomatic feud in April 2023, leading to the restoration of relations between the two countries. Similarly, in June 2023, the UAE and Qatar restored full diplomatic relations after six years by reopening their embassies. These reconciliations are expected to foster greater regional integration and cooperation.
The GCRI risk score in the MEA region has increased continuously for six quarters until Q1 2023, signalling a deteriorating situation. Factors such as unstable growth, subsidies, and state-owned enterprises operating at a loss, along with external challenges like interest rate hikes and price surges, continue to put pressure on public finances in low and middle-income countries, except for the GCC. Given the region’s rich resources, it is imperative for economies to prioritize attracting higher investments, as this can significantly contribute to overall economic advancement in the region.
*Horn of Africa – Countries include Sudan, Eritrea, Ethiopia, Djibouti, and Somalia
**Integrated Food Security Phase Classification (IPC) is a common scale for classifying the severity and magnitude of food insecurity and acute malnutrition. The scale includes five phases, with Phase 1 meaning there is no or minimal acute food insecurity and Phase 5 meaning famine has been reached.