Sunday , January 24 2021

Least affected by the pandemic: Why Arab nations still suffer economic pain

The International Monetary Fund predicts that the economies of the Arab nations of the Middle East and North Africa will agree to 5.4 percent in the period 2020-21 due to the covid-19 pandemic and the fall in international oil prices. (I left out Lebanon and Libya because they are facing exceptional circumstances.) This means that the Arab region of MENA, despite being among the least affected by the pandemic in terms of confirmed cases and deaths, will suffer disproportionate economic pain.

The IMF’s economic outlook for the world shows that the economic contraction is proportional to the public health crisis caused by the pandemic in most regions – North America, Europe, Latin America and the Caribbean, South Asia. The US economy should shrink by 4.3 percent, the eurozone, Latin America and India by 8.3, 8.1 and 10.3 percent, respectively. In contrast, China is expected to grow by 1.9 percent, reflecting the effective prevention of early outbreaks in Beijing.

Now look at the MENA Arab region, with the exception of Israel and Iran. On the public health front, the Arab nations have done relatively well when compared to many other parts of the world. This is confirmed by the data on the death of Covid-19 per million people in the period from December 2019 to October 2020. The ratios for the United States, the European Union and South America were 673.80, 360.45 and 661.29, respectively. The average for the Arab world was 79.46 per million. For the most populous Arab nations – Egypt, Algeria, Sudan, Saudi Arabia, Morocco and Tunisia – the average was even lower, at 62.21 per million.

Even if there are few underreported figures for these countries, they should be comparable to other parts of the world with similar income levels and relatively limited government capacity to collect, process and report data.

No one knows for sure why some regions of the world are affected worse than others. However, the situation in the Arab MENA becomes increasingly inexplicable when you consider that some of its most populous countries – such as Egypt – have never had complete blockades for extended periods. This was supposed to mitigate the economic impact of the pandemic, but it did not. How can this be explained?

The pandemic has exacerbated an already problematic way of integrating the region into the world economy. Three factors come to the fore: the heavy and persistent dependence on oil and natural gas exports as the most defining feature of the Arab nations’ place in the global division of labor; over-reliance on Europe and the United States as major trading and investment partners; and low levels of trade integration within the region itself. These long-standing structural weaknesses have increased the economic impact of the Covid-19 crisis. It is difficult to say that this is unique to the Arab world, as the same pattern seems to apply to sub-Saharan Africa, albeit to a lesser extent. Both regions are major exporters of raw materials to the more developed parts of the global economy in North America, Europe and Asia.

The Arabian MENA has the largest trade-to-GDP ratio in the global south, but trade is dominated by oil and gas as exports and heavy imports of everything else. In 2019, the MENA ratio was 63.7 percent, compared to 41.3 percent, 40.6 percent and 28.9 percent for Latin America, sub-Saharan Africa and South Asia, respectively. Even excluding the high-income MENA countries, which are all small oil-exporting nations, the trade-to-GDP ratio will still be around 57 percent.

In 2013, before the fall in international oil prices, fuel exports accounted for 71 percent of total exports of goods to the Arab MENA region. Even excluding small, high-income exporting nations, the share of fuel exports was 67 percent. The decline in the share of fuel imports after 2014 does not indicate better diversification: In fact, total exports of goods have decreased dramatically.

In addition, the fact that the EU and the US are major trading and investment partners in the Arab world has intensified the impact of the health crisis in those areas on the economic performance of the MENA region. The region has by far the lowest percentage of exports of goods to low- and middle-income countries, compared to any other region in the global south.

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