Dr. Robert Mogielnicki is a Senior Resident Scholar at the Arab Gulf States Institute in Washington and an Adjunct Assistant Professor at Georgetown University’s Walsh School of Foreign Service.
The 2023 economic outlook for the Middle East and North Africa (MENA) region remains uncertain and highly variable. The ongoing war in Ukraine and the state of energy markets will continue to serve as key issues impacting MENA countries’ global wealth and talent attraction efforts. With the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27) having concluded in Egypt and COP28 set to take place in the UAE, environmental considerations will be at the forefront of economic development initiatives across the region.
The hydrocarbon dependence of Gulf Cooperation Council (GCC) countries continues to represent a longer-term strategic vulnerability for regional governments. Yet, the shorter-term impact of higher energy prices has been a net positive, enabling the GCC to function as one of the strongest performing regions in the world. HSBC forecasted that regional growth would reach 6.5% in 2022 and 5% in 2023.
Regional economies that combine robust hydrocarbon sectors with attractive non-oil industries — such as the UAE — enjoy competitive advantages. The UAE’s latest vision, ‘We the UAE 2031’ lays out several goals for the next decade: generating public sector employment, hosting a successful COP28 climate summit, developing new economic partnerships, and accelerating a digital future. The emirate of Dubai, in particular, excels in tailoring visions and strategies to the specific needs of firms, investors, and high-net-worth individuals. Plans to build a Wynn resort licensed for gaming in the emirate of Ras Al Khaimah may pave the way for a larger gambling industry to emerge in designated hubs across the country. The influx of Russian wealth into the country following the invasion of Ukraine, however, will heighten the pressure on emirate- and federal-level governments to address money laundering and other forms of illicit financial flows.
Saudi Arabia remains committed to advancing its ambitious Vision 2030. Rather than attract trade and investment flows with the tailored approach used by the UAE, Saudi economic policy officials are wagering that wide-ranging socio-economic reforms will drastically increase the attractiveness of the GCC region’s largest economy and that megaprojects with luxury and technology-heavy dimensions will stir excitement among global investors and high-net-worth individuals. The Saudi Arabian government and the country’s sovereign wealth fund, the Public Investment Fund, must function as the key financial enablers for flagship megaprojects, such as Neom, to transition from the conceptual to implementation stages. Saudi relations with Russia following its invasion of Ukraine will continue to weigh on strained US–Saudi ties.
The remaining GCC states are likewise poised for strong or much improved economic performances. Qatar’s hosting of the 2022 FIFA World Cup provided an unparalleled opportunity to market the small Gulf country to a global audience and served as a springboard for longer-term Qatari tourism plans. The World Bank anticipated Kuwait’s growth to accelerate to 8.5% in 2022 alongside a strong performance of non-oil sectors. S&P Global Ratings revised Bahrain’s outlook from stable to positive, citing high oil prices and government efforts to reduce its budget deficit, and the International Monetary Fund has praised Oman’s continued fiscal consolidation and structural reforms under the country’s Vision 2040.
Beyond the GCC region, the largest MENA economies face various challenges. Türkiye must contend with inflation accelerating past 80%, a weak currency, and persistent policy uncertainty. Egypt is one of the world’s largest wheat importers, and most of its wheat comes from Russia and Ukraine. High commodities prices — from wheat to oil — weigh heavily on the Egyptian economy. Moreover, fewer Russian and Ukrainian visitors will negatively impact the country’s tourism industry. In Iran, violent protests erupted after the death of a young woman last September while in the custody of the country’s morality police. In early December 2022, Iran’s currency dropped to new lows against the dollar amid continued unrest across the country. Inflation, unemployment, and corruption have fueled protests, posing a major challenge for the regime.
Smaller MENA countries must manage an array of regional and global pressures. High energy and food costs are key concerns for the governments of low- and middle-income countries across the region. Countries such as Jordan, Lebanon, Morocco, and Tunisia cannot afford major spending increases, placing them at greater risk of civil unrest. The Saudi sovereign wealth fund, the Public Investment Fund, announced plans for regional investment offices in Bahrain, Iraq, Jordan, Oman, and Sudan as part of efforts to recycle some oil windfalls throughout the region. Meanwhile, the International Organisation of La Francophonie met in November 2022 in Tunisia as the small North African country seeks to secure a USD 2 billion economic support package for its struggling economy. Financial support and investments from regional and international sources may ease some economic pressures but are unlikely to resolve the underlying fiscal and socio-economic challenges in the region’s most fragile states.