Middle East and
Africa
Image courtesy of skeeze, pixabay.com, CC0
Economic Research Department
Paris, June 2017
Middle East & Africa: No countries for old men
The split is becoming more and more
evident. Good governance is key to cope
with a challenging environment
#1 Political risk at the root
• Aftermath of the Arab Spring (political gridlocks
and fractionalization of some countries) and
Sunni/Shia rivalry (Saudi Arabia vs. Iran)
• Old cold conflicts warming up again (e.g. Kurds in
Turkey and beyond)
• Political uncertainty on the back of weak
economic performance in commodity exporters
(South Africa, Nigeria, Ghana, Gabon)
#2 Economic triggers of divergence
• Low for long oil price: the cut in net national
savings still hold (~25% of GDP in Saudi Arabia)
• Exchange rate policy: Floating exchange rates
acted as shock absorbers (South Africa, Egypt)
and fixed ones worsened by the sudden stop
(Nigeria, Angola)
#3 Good cop/ bad cop
• The good: countries with the most resilient
institutions able to implement reforms see
resilience or improved prospects (Morocco,
Egypt, Kenya)
• The bad: public debt increased or strong in many
Sub-Saharan economies, either liquidity issues
(Ghana, Tunisia) or solvency risks (Mozambique,
Angola)
Source: Euler Hermes
Middle East & Africa: country risk and economic growth
growth in 2017 in light grey
B3 2.0%
Tunisia
Morocco
B1 4.5%
2.0%
Egypt
D3
1.5%
Saudi Arabia
BB1
UAE BB1
2.0%
Nigeria
1.0%
D3
Kenya
C2 4.7%
Angola
D3
0.5%
South Africa
B2
Source: Euler Hermes
Low risk
Medium risk
Sensitive risk
High risk
0.6%
2
Middle East / oil: one cut does not fit all
OPEC’s oil output reached all-time highs in
November 2016. Then, the agreement to cut
output was properly implemented.
No oil bonanza: The output was effectively
cut in the OPEC, but with poor impact on
prices, since the US added further output.
World oil supply change between Nov16 and
May17, M bl/d
OPEC oil production
34
44%
Output cut
is agreed
1.0
43%
33
Other Non-OECD
0.5
US
42%
China
32
0.0
Former Soviet Union
41%
OPEC
31
-0.5
Other OECD
40%
30
39%
29
Output (M bl/day, left)
Mexico
-1.0
OPEC
38%
-1.5
37%
-2.0
Canada
U.S. (50 States)
Market Share (% of World, right)
28
12
13
Sources: EIA, Euler Hermes
14
15
16
17
Sources: EIA, Euler Hermes
3
Middle East: The Fear Factor
Potential for a new conflict? Or recycling an old one? Identifying some, among many,
pressure points
Cross-border area with
significant Kurdish
communities
Main opportunities/risks
+
Turkmenistan
Turkey
Lebanon Syria
Afghanistan
Iraq
Iran
Pakistan
Egypt
Saudi
Arabia
Yemen
Percentage of Sunnis
in the population
> 50%
26% < 50%
10% < 25%
< 10%
Sources: Euler Hermes
Political
change: more
openness to
world trade and
investment
flows (e.g. Iran)
-
Output cuts do
not push the oil
price higher
Political crisis in
a country with
high public
(Bahrain) or
private debt
(Turkey)
Growth collapse
in the region for
a longer period
of time
Uncertainty
toward US
foreign policy in
the aftermath of
upcoming US
presidential
elections
Conflict pressure points:
- Kurdish areas, including Turkey
- Saudi v. Iran, incl. Straits of Hormuz
- Yemen, Sunni v. Shia on Saudi’s Southern flank
4
- Qatar v. Saudi Arabia, UAE, Bahrain, Egypt (blockade)
After a tough year in 2016, 2017 will be even
tougher for most GCC countries
In 2017, GCC countries will absorb adverse external headwinds. Most will record weaker GDP
growth than in 2016 but, thanks to huge SWFs, they all continue to provide solid risk profiles
Kuwait
2016
2017f
2018f
2.0
1.5
2.0
Bahrain
Saudi Arabia
2016
2017f
2018f
3.0
2.0
2.2
Qatar
2016
2017f
2018f
2.2
1.8
3.0
UAE
2016
2017f
2018f
1.4
1.5
2.0
2016
2017f
2018f
2.3
2.0
3.0
Oman
2016
2017f
2018f
2.5
1.5
2.5
5
GCC - Leak #1 Low oil prices (1/3): Challenge to
the source of the dynamic of the GCC economy
After bottoming out in 2016, energy prices
are forecast to remain low next year
The oil price slump has put a drag on the GCC
countries’ GDP share coming from oil rents
Change in Oil and gas prices
Change in oil rents contribution to GDP
(% of GDP)
Sources: Bloomberg, Euler Hermes forecasts
Sources: IHS, Euler Hermes
6
GCC - Leak #1 Low oil prices (2/3): Fiscal and
external balances have dried up in 2016
All GCC members have faced a considerable
deterioration in their balances and face (again)
a fiscal deficit in 2017
Without policy changes, GCC countries
(other than Kuwait and Qatar) will run out
of buffers in less than 5 years
Fiscal and external balance evolution in the GCC
countries between 2014 and 2016 (% of GDP)
2016 Fiscal break even price (USD bn)
35%
Kuwait
USD45/barrel in 2016
Current account balance (% of GDP)
Qatar
20%
2014
Saudi Arabia
UAE
Kuwait
Bahrain
5% Oman
UAE
Qatar
Bahrain
Saudi Arabia
-10%
Oman
2017
-25%
-10%
0%
10%
20%
Fiscal balance (% of GDP)
7
Sources: IMF
Sources: IHS, Euler Hermes forecasts
GCC - Leak #1 Low oil prices (3/3): The slowdown
is set to continue
Subdued oil prices and the OPEP deal will
impede exports both in value and volume
Current account balance (% of GDP)
Sources: IHS
This will further negatively impact economic
activity in 2017-2018
Real GDP growth
Sources: National accounts, IMF
8
GCC - Leak #2 Dollar peg: Monetary policy is
restrained and Fed hikes trigger tighter monetary
conditions
The peg to the USD influences directly
GCC Central Banks’ policies
GCC currencies are pegged to the US
dollar and follow closely its upward path
Monetary policy rate
REER
Sources: IMF, IHS
Sources: IHS
9
GCC - Tank #1(1/2): Strong financial asset base
and low debt levels provide a cushion…for now
Four of the top 10 sovereign wealth
funds worldwide are based in the GCC
Sovereign Wealth Funds (USDbn)
Source: Sovereign Wealth Fund Institute
Repayment obligations equal less than
3% of goods exports earnings on average
External Debt Servicing (as % of goods exports
earnings)
Sources: IHS, Euler Hermes
10
GCC - Tank #1(2/2): Solid reserves act as cushions
softening risk of non-payment in the region
FX reserves stand quite high, particularly
in Saudi Arabia
Foreign exchange reserves
Sources: IMF, IHS
Adding to FX reserves, large sovereign wealth
funds provide comfortable import cover
FX & SWF as imports cover (in months)
Sources: Sovereign Wealth Fund Institute, IMF
11
GCC - Tank #2: Neither currency carnage nor
Dutch disease
GCC currencies remain pegged to the
USD and thus not affected (directly) by
volatility
Gulf currencies parity against the USD (yearly
average)
2000
2014
2016f
Bahrain
0.38
0.38
0.38
Kuwait
0.31
0.28
0.30
Oman
0.38
0.38
0.38
Qatar
3.64
3.64
3.64
Saudi
Arabia
3.75
3.75
3.75
UAE
3.67
3.67
3.67
Source: Euler Hermes
Inflation remains under control, below
the 3% threshold on average in 2017
Inflation figures (yearly average, %)
Source: Euler Hermes
12
Saudi Arabia and UAE: Diversification from the
oil sector will take time
Large fiscal deficits will be structural, despite
some reforms. SOE reform (Saudi Aramco) is
key, but there’s no free lunch.
Fiscal consolidation was necessary, but lower
subsidies to utility prices (and introduction of VAT
in 2018) cut growth prospects and imply stronger
inflation.
Fiscal balances
(as % of GDP)
Growth and consumer prices
(percentage change)
15
10
Saudi Arabia GDP growth (%)
UAE GDP growth (%)
Saudi Arabia Inflation (%)
UAE Inflation (%)
5
5
4
0
3
-5
Saudi
Arabia
UAE
-10
2
1
-15
-20
2012
2013
Sources: IMF, Euler Hermes
2014
2015
2016
2017
2018
0
2013
2014
Sources: IMF, Euler Hermes
2015
2016
2017
2018
13
Saudi Arabia: A need to rebalance the economy
will keep growth low
An unbalanced economy #1: after the oil price
slump, the current account balance turned into a
deficit
An unbalanced economy #2: the non-oil fiscal
balance is among the worsts in the World.
Saudi Arabia: fiscal balance
oil vs. non oil balance (% of GDP)
Saudi Arabia: GDP Growth and current account balance
30
55%
Current account
balance (% of
25
45%
2011
20
35%
15
25%
15%
10
2014
5%
5
-5%
0
2017
-15%
2018
-5
-25%
GDP growth (%)
2015
2016
-10
Non oil balance
Oil balance
-35%
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16f 17f
Sources: IMF, Euler Hermes
Sources: IMF, Euler Hermes
14
Focus on Qatar: Transport and Construction are
the first two sectors to cope with the GCC embargo
Qatar’s sectors have had to face embargoes
since the GCC diplomatic crisis broke
Distribution of sector grades in Qatar
for each quarter since Q2 2015
Only 16% of all products imported in Qatar
are provided by the GCC as a whole
Qatar’s imports from the GCC region, by type of
product (2015 data in USD mn)
(*) Percentages in brackets = total imports from GCC / total imports from the World
Both Construction and Transport sectors have just been
downgraded to Sensitive Risk over Q2 2017
Source: Euler Hermes
UAE provided Qatar with most of industrial goods while
Saudi Arabia did with foodstuff. They have been replaced
by Iran and Turkey since then
Sources: ITC, Euler Hermes
15
Iran: Back in the game after marked sanctions
relief in early 2016?
Real GDP growth picked up sharply to
+6.5% in 2016 but is forecast to ease and
stabilize around +4% in 2017-2018…
…as oil production climbed from 3.3 mn
bbl/day in 2015 to about 3.9 mn in 2016 and
should increase further to 4.1 mn in 2017
Real GDP growth (% y/y), Oil Price (Brent, USD/bbl)
10%
Tightening of
international
sanctions
8%
Partial relief of
international
sanctions
$140
Oil production
Oil production
(mn barrels/day)
Share in global
production (%)
$120
4.0
6%
$100
4%
5%
3.8
2%
$80
0%
$60
3.6
-2%
$40
4%
3.4
-4%
-6%
GDP growth
$20
3.2
$0
3.0
Oil price
-8%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
3%
07
08
09
10
11
12
13
14
15
16
17
16
Sources: IHS, Euler Hermes forecasts
Sources: IEA, Euler Hermes estimates and projections
Africa, long-term financing sources: Still there
Remittances: a genuine buffer to offset the
depreciation of local currencies affected by
weak commodity prices
Increasing FDI inflows in manufacturers vs.
weaker
performances
in
commodity
exporters
Africa FDI inflows (% change, 2015)
Africa: current accounts and remittances
Current account balance change from 14 to 16 (GDP pps )
10%
Decreasing
deficit
Size of the bubble:
2016 debt level
40%
20%
0%
Egypt
Morocco
+13%
+6%
Nigeria
5%
Senegal
Kenya
-19%
Ethiopia
Tanzania
-16%
Tunisia
Uganda
South Africa
0%
-5%
Côte d’Ivoire
0%
Nigeria
-5%
Zambia
Cote d'Ivoire
5%
+73%
Ghana
+21%
Rwanda
-42%
Latin
America
-15%
South Africa
Remittances changes from 14 to 15
Western
Europe
Sources: IHS, Euler Hermes
Mozambique
Emerging
Europe
Middle
East
+49%
+25%
AsiaPacific
Angola
Kenya
Tanzania
North
America
Africa
Algeria
+67%
Top investing regions in Africa (2015)*
Egypt
-10%
Uganda
+3%
*includes estimates
Sources: FDIintelligence, Euler Hermes
17
China and Africa: Going East
Selective partnership through the OBOR
projects (for infrastructure hungers)…
Current China presence in Africa, and its
future
…deepening financial relations with largest
(Nigeria, South Africa), growth leaders (Kenya,
Ethiopia) and strategic countries (Angola)
Selected list of agreements
Infrastructure agreements
• Kenya: Standard Gauge Railway connecting Monbasa to
Nairobi (approx. USD3.8bn)
• Nigeria: Coastal railway to link Lagos with Calabar,
passing through 10 states (USD12bn)
• Congo DRC: Infrastructure for Mines barter deal
(USD6bn)
Swap contracts
• Egypt: currency swap agreement valued at USD2.7bn
• South Africa: exchange of local currencies of up to
R57bn, valued at USD4.75bn
Loans (from 2011 onwards)
Core countries
already involved in
the OBOR project
• Angola: USD21.2bn
• Ethiopia: USD12.3bn
Expected positive
economic spillovers
from OBOR
Source: Euler Hermes
Source: CARI, Euler Hermes
18
Africa, liquidity: Under pressure
Many countries experienced currency depreciation. The CFA zone is partly spared by its peg.
For oil exporters, austerity looms ahead. In countries with low import covers, exchange rate
flexibility and IMF support are key buffers.
Africa: exchange rate vulnerability (South+East)
Africa: exchange rate vulnerability (North+West)
20%
25%
Color of the bubble:
import cover (months)
Size of the bubble:
BWA currency depreciation
15%
7+ months
5-7 months
4-5 months
0-4 months
60%
40%
20%
15%
Current account balance (% GDP)
Color of the bubble:
import cover (months)
currency appreciation/
stability vs. USD
10%
7+ months
5-7 months
4-5 months
0-4 months
60%
40%
20%
10%
Current account balance (% GDP)
Size of the bubble:
currency depreciation
vs. USD
20%
Currency appreciation/
stability vs. USD
5%
5%
NGA
MAR
0%
-5%
0%
0%
10%
CMR
20%
40%
50%
60%
70%
80%
CIV
COD
EGY
COG
BFA
10%
MDG
20%
30%
ZAF
MUS
KEN
GAB
MLI
0%
40%
50%
60%
70%
80%
AGO
-5%
GHA
SEN
-10%
30%
ZMB
UGA
LSO
DZA
-10%
ETH
NAM
-15%
-15%
RWA
-20%
Commodity exports (% GDP)
Commodity exports (% GDP)
Sources: IHS, Euler Hermes
Sources: IHS, Euler Hermes
19
Africa, external debt: Usual suspects
External debt increased a bit, but remain far
below past crisis peak: no solvency issue,
but liquidity needs…
…pushing some countries to request IMF
support
African countries under/expecting IMF lending agreement
Sub-Saharan Africa aggregate and country-level
external debt (as % of GDP)
Tunisia
Morocco
Though far from 90's peaks, External debt (%
of GDP) is on upward trajectory again
Egypt
Mali
Niger
Chad
Guinea Bissau
Guinea
Cameroon
Sierra
Leone
Liberia
Côte
d’Ivoire
Ghana
Benin
CAR
Burundi
Burkina
Gabon
Togo
Faso
IMF lending program (agreed
before 2015)
IMF lending program (agreed
from 2015 to date)
Possibility of an IMF lending
program in the upcoming 12
months
Countries under a precautionary
program (FCL, PLL)
Sources: WorldBank, IMF ,Euler Hermes
Yemen
Rwanda
Kenya
Malawi
Zambia
Madagascar
Mozambique
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
2000
2016
Angola
Benin
Burkina…
Cameroon
CAR
Chad
Congo
Egypt
Ethiopia
Gabon
Guinea
Ghana
Gambia
Kenya
Mali
Malawi
Madaga…
Mozam…
Niger
Nigeria
Senegal
Rwanda
South…
Tanzania
Uganda
Zimbabwe
Zambia
Gambia
Sources: WorldBank, Euler Hermes
20
Africa, public debt: Up to no good
Fiscal vulnerability is stronger in some oil
exporting economies (Nigeria, Libya, Angola,
Algeria)
After a three-year commodity shock, the
moment of truth is approaching: some will
have to adjust and some to default
Sub-Saharan Africa aggregate and countrylevel public debt (as % of GDP)
Africa: Fiscal vulnerability
50
Public debt (% of GDP)
on the rise again (41%
of GDP) in 2016
40
Algeria
Mozambique
30
Côte d'iIvoire
20
Ghana Mali
Zambia
Guinea
Cameroon
Congo
Angola
Gabon
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Libya
RDC
Chad
10
Nigeria
0
0
20
Sources: IMF, Euler Hermes
40
60
80
Commodity revenue
(% of total fiscal revenue)
100
2002
2016
Angola
Benin
Burkina Faso
Cameroon
CAR
Chad
Congo rep
Egypt
Ethiopia
Gabon
Ghana
Guinea
Gambia
Kenya
Mali
Malawi
Madagascar
Mozambique
Niger
Nigeria
Senegal
Rwanda
South africa
Tanzania
Uganda
Zimbabwe
Zambia
General govenrment revenue
(% of GDP)
Increasing fiscal
vulnerability
Sources: WorldBank, Euler Hermes
21
Egypt: Reforms delivered fast
Long awaited reforms were implemented. A
very positive impact of the flexible exchange
rate regime.
Impressive results. No more liquidity risk:
import cover returned to past-crisis levels and
the black market exchange rate vanished.
Exchange rate and import cover
#1 Tectonic moves
• From 2016, November 1, the EGP is now ruled
by a flexible exchange rate. First days show that
the Central Bank effectively manages it as a free
float.
• A set of subsidies is cut, particularly regarding
fuel prices
16
20
14
18
Import cover (left)
12
16
Exchange rate per USD (right)
10
14
8
12
6
10
4
8
2
6
#2 No more dollar/funding shortages
• Egypt secured a USD 12bn loan from the IMF
• Egypt issued some bonds in the eurobond market
(some by private placement)
• Great expectations regarding Egypt after reforms
fueled strong inflows on the equity market
#3 Capital controls unwinding
• Limits on international currency transfers
(implemented at the beginning of the political
crisis) are removed from June 14.
Source: Euler Hermes
0
4
07
08
09
10
Sources: IHS, Euler Hermes
11
12
13
14
15
16
17
22
Egypt: Don’t hold back
A manageable growth impact of the ongoing
rebalancing.
Despite the pass-through from exchange rate
depreciation to inflation.
Growth and current account balance
Inflation and Monetary Policy
6
34%
18
29%
16
4
2005
Current account balance (%)
2
Inflation (y/y, left)
24%
2002
14
Policy rate (%, right)
0
2014
2018
2008
-2
19%
12
14%
10
9%
8
20112017
-4
-6
2016
Pound
flexibilization
-50% depreciation
-8
0
2
4
GDP Growth (%)
Sources: IHS, Euler Hermes
6
8
4%
6
09
10
11
12
Sources: IHS, Euler Hermes
13
14
15
16
17
23
Morocco: In 2017, GDP growth strikes back, as
expected
Consumption (public & private) was the
resilient factor in 2016. Growth should be
broader-based in 2017
In 2017Q1, GDP growth accelerated to
+4.3% y/y, after +0.9% in 2016Q4. A good
harvest helped agricultural output recover
Contributions to GDP growth (%)
Value added: agriculture vs. non-agriculture
Non-agricultural value added y/y change (right)
145
7
Non-agricultural value added
4.5
6
2.4
4.5
4.5
5
Agricultural value-added
140
5%
135
2.6
4
6%
130
3
1.1
2
4%
125
3%
1
120
0
115
-1
-2
2%
110
1%
-3
12
13
14
15
16p
17f
Public consumption
Private consumption
Investment
Net exports
Inventories
GDP growth
Sources: National souces, Euler Hermes
105
100
0%
Q1 12
Q1 13
Sources: IHS, Euler Hermes
Q1 14
Q1 15
Q1 16
Q1 17
24
Morocco: A balancing act, Exchange rate
liberalization
The current account deficit is hard to beat. It
is consistent with a view that the Dirham is
too high
A more flexible Dirham. Implementation to
start very soon. A +/-2.5% target range is
likely
Dirham: real effective exchange rate
GDP growth and current account balance
0
110
Balanced
growth
Current account balance (% of GDP)
-2
Appreciation
108
2015
2017
2018
106
New
currency
basket
104
-4
2010
2016
2014
-6
102
2009
100
-8
98
2008
2013
Trump
96
2011
Morocco, Exchange Rate, Reer Based On Rel.Cp, Index Number,Election
Source:
94
-10
2012
Fed
Tapering
92
90
-12
0
2
4
GDP growth (%)
Sources: IMF, Euler Hermes
6
8
88
07
08
09
10
11
Sources: Bloomberg, Euler Hermes
12
13
14
15
16
17
25
Morocco: More exchange rate flexibility is
manageable
Despite a deterioration of the current account
deficit, the import cover of foreign reserves is
quite stable: no external liquidity issue
Low inflation is a strength. Fiscal consolidation
lagged in 2016, but financing is not a big issue
(S&P affirmed its BBB- sovereign rating)
Internal balance: fiscal balance and inflation
External balance: forex reserves and current account
0
4.5
4
2015
2017
2018
-4
2009
2014
-6
2008
2013
-8
3
2010
2016
2008
3.5
2011
Inflation (%)
Current account (% of GDP)
-2
2.5
2018
2013
2
2017
2015
2016
1.5
2012
1
-10
2011
0.5
-12
0
2
4
2009
2010
2012
6
8
10
2014
0
-8
-6
-4
-2
0
2
Import cover
Fiscal balance (% of GDP)
Sources: IMF, Euler Hermes
Sources: IHS, Euler Hermes
26
Nigeria: Growth should come progressively
Low DSOs, the exchange rate crisis and
capital controls, engineered a credit crunch.
Their easing is good news.
A U-shaped (rather than V) recovery, but
recession will probably end soon. Overall,
+1% GDP growth is expected in 2017.
Nigeria: exchange rates official vs. black market
Nigeria: inflation rate and monetary policy (%)
14%
550
550
12%
Official
500
500
10%
Black market
450
450
400
400
8%
6%
Capital controls
eased
350
4%
10%
300
350
300
Forecasts
2%
0%
42%
-2%
250
250
"Free Float"
announced, but capital
controls tightened
200
150
03-16
-4%
200
150
06-16
09-16
Sources: Bloomberg, Aboki, Euler Hermes
12-16
03-17
06-17
-6%
-8%
10Q1
11Q1
12Q1
13Q1
Sources: Bloomberg, Euler Hermes
14Q1
15Q1
16Q1
17Q1
27
South Africa: Fortunately a rebalancing is
ongoing, unfortunately it has a growth cost.
A protracted period of quite high inflation
delayed growth recovery, but as inflation
decreases, growth should come after all.
The private sector is rebalancing, making the
bulk of the current account improvement:
should be growth positive
Growth-inflation balance
Fiscal and current account balances
2002
14
2
12
1
2005
2008
10
Inflation (%)
8
2016
2017
2014
2011
6
2005
2018
4
2
2002 -1
Fiscal balance (% of GDP)
Stagflation
0
2008
-2
Increasing
twin deficits
2014
-3
2016
2017 2011
-4
2018
-5
Twin deficits
0
-2
-1
0
1
2
3
GDP Growth (%)
Sources: IHS, Euler Hermes Forecasts
4
5
6
-6
-8
-6
-4
-2
0
2
Current account balance (% of GDP)
Sources: IHS, Euler Hermes Forecasts
28
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