According to the International Monetary Fund (IMF), global economic prospects have taken a downturn in the wake of a weaker U.S. economic recovery, uncertainty surrounding the Euro-zone’s fiscal stability and relentless turmoil in the Middle East and North Africa (MENA) region. In recent weeks, the MENA region has been in the spotlight yet again, with the Libyan revolt against Muammar Gaddafi’s 42-year long dictatorship gaining momentum. The IMF has been keeping a close watch on developments in the strife-ridden country and is yet to determine the uprising’s impact on the Libyan economy.

Meanwhile, high food and energy prices and lower levels of food stock remain a concern, according to the World Bank. Although food price rises have lost some momentum in the developed countries, volatility in oil prices are likely to persist given the ongoing political unrest in the MENA region. In the light of growing economic concerns, South Africa’s Finance Minister has expressed a clouded outlook for the sub-Saharan economy in the near term. In addition, South Africa’s problems have been compounded by a spate of labor strikes across its industries, which could shake up investor confidence.

After registering an impressive growth of 4.7% in the initial quarter of 2011, Israel’s economy lost pace in the second quarter, with the GDP expanding 3.3% due to a slowdown in the domestic market. Consequently, the central bank has lowered Israel’s growth outlook for 2011. Elsewhere, Egypt continued to grapple with political instability in addition to dwindling foreign reserves, lower tourism revenues, and a fall in investments.

Yet encouragingly, Morocco and Jordan are positive about their growth, despite challenges. While Morocco’s government is keen on reviewing factors contributing to achieving financial stability, the initial round of talks regarding Jordan’s accession to the Gulf Cooperation Council (GCC) is expected to take place in September. With the IMF raising its 2011 GDP outlook for the GCC countries to 7.8% from an earlier forecast of 5.2%, it remains to be seen how Jordan’s economy stands to benefit from the resource-rich GCC.

According to a World Bank report, the short-term outlook for the MENA region continues to largely remain uncertain due to the impact of the political upheavals and social unrest that has gripped the region since the beginning of 2011. MENA’s economy expanded 3.9% in 2010 and was slated to grow 4.8% in 2011 and 2012, respectively. However, economic growth is expected to be lackluster at 1.9% in 2011 before it advances to around 4% in 2013, on the back of improved investors confidence and capital flows.

South Africa: Economic uncertainty amid global slowdown fears

According to the finance minister, Pravin Gordhan, the economic outlook for South Africa remains uncertain in the near term in the wake of slowing global economic activity, and debt problems in the United States and Europe. This has triggered a surge in the nation’s fixed income market investments by foreign investors. South Africa’s heavily traded four-year government bond’s yield declined 7 basis points to 6.76%, which according to a Reuters report, was the lowest yield on the 2015 bond since its issue in October 1991.

Elsewhere, the central banks of Nigeria and Mauritius have announced diversification of their foreign currency reserve composition, in a bid to reduce their reliance on the greenback and the euro. Encouragingly, the South African Reserve Bank (SARB) and the treasury expressed confidence in South Africa’s resilient and liquid financial markets, thereby retaining the existing composition of the foreign currency reserves. South Africa’s $41.7 billion foreign currency reserves are denominated primarily in U.S. dollars, euros and pound sterling. The country also holds $5.7 billion worth of gold, according to the SARB and the treasury.

The finance minister is keen on bringing about reforms in the finance sector by establishing a Financial Stability Oversight Committee. This committee, jointly chaired by the finance minister, the SARB governor and the Council of Financial Regulations, is expected to review regulations related to foreign exposure and foreign direct investments.

In addition to the turmoil caused by external factors, South Africa is up against more disruptive challenges on its home turf. According to Statistics South Africa, there is growing economic disparity among the country’s population due to a continued high rate of unemployment, which stands at 25.7%. The finance minister has suggested a relaxation of labor laws in a few cases, to allow young people to gain lower wage workplace experience, without compromising the existing workforce. However, this proposition has not been popular with the Congress of South African Trade Unions (COSATU), according to a Reuters report. COSATU members in the mining and manufacturing sectors, in particular, have seen a 30% rise in wages in the last three years amidst the global financial crisis, as employers laid off workers to counter rising personnel costs. Given the dim economic outlook, the finance minister revised down job creation numbers to 4 million by 2025, from an earlier estimate of 5 million.

Another worrying issue is the spate of labor strikes that have gripped the nation. Although most of the union led strikes have been resolved, the impact is likely to hurt factory goods demand in the coming months. The Kagiso Purchasing Managers’ Index (PMI) dropped for the fourth consecutive month to a two-year low of 44.2 points in July. In addition to slower factory activity in China and Europe, South Africa’s key trading partners, strikes on the domestic front hurt business activity, leading to the PMI decline.

What’s more, analysts believe that the strike environment might dampen investor confidence and put the brakes on the flow of foreign direct investments (FDI). According to a United Nations Conference on Trade and Development report, FDI plunged 70% in 2010 from 2009 levels, with South Africa trailing behind Nigeria, Angola and Rwanda. Further, a business confidence index (BCI) measured by the South African Chamber of Commerce and Industry (SACCI) dropped to 99 points in July, the lowest level so far this year. Adding to the woes, household debt levels have continued to rise. According to a report by Absa Home Loans, total outstanding credit balances in the domestic household sector climbed 7% (year-on-year) in the initial half of 2011.

Yet encouragingly, retail trade sales increased 2.2% on a year-on-year basis in June from 0.2% in May, according to Statistics South Africa. Retailers in the cosmetics and toiletries, medical goods, pharmaceutical, household furniture, and appliances and equipment industries, as well as general dealers, witnessed growth. According to the National Association of Automobile Manufacturers of SA (NAAMSA), new vehicle sales dipped to 10.5% in July (year-on-year) compared to 12.6% in June, signaling slowing demand for new cars. Still, exports sales rose 8.1% year-on-year in July, while domestic sales grew 15.0% in the first seven months of 2011 versus the comparable period in 2010.

However, according to SARB analysts , economic growth is likely to lose pace in the latter half of the year due to a lackluster job market, rising cost pressures, and high debt levels. An IMF report forecasts South Africa’s economy will expand 4% in 2011 and by 4.2% in 2012.

Israel: GDP growth loses pace in Q2 2011

According to the Central Bureau of Statistics, Israeli GDP expanded 3.3% in the second quarter of 2011, mirroring a slowdown in the domestic market. Israel’s economy had clocked 4.7% growth in the first quarter of 2011 and 7.4% in the final quarter of 2010. GDP rose 5% in the first half of 2011 compared to 5.6% growth a year ago.

The total import of goods and services jumped 21.3% in the first half of 2011 versus a 13.7% rise a year ago. Personal consumption expenditure (PCE) continued to climb on the back of higher household spending on home appliances, personal cars and furniture. The PCE increased 5.3% in the initial half of 2011 compared to a 2.2% rise in the comparable period last year. Still, Bank Hapoalim and TNS Teleseker’s consumer confidence index dipped slightly in July by 1.1 points to 132.8, due to the present economic condition and ongoing protests. The Bank Hapoalim report also mentions a slowing spending environment. The total export of goods and services in the above mentioned period grew at a slower pace, clocking in a rise of 8.1% compared to 17.5% jump in the same period a year earlier, mirroring a slowdown in global activity.

Elsewhere, investment in fixed assets such as business equipment and vehicles, as well as real estate also showed a drop in growth momentum. Investment in fixed assets grew by 16.9% over the January-June period in 2011 versus a 25.2% rise in the second half of 2010.

Meanwhile, there has been a slight shift in Israel’s housing market trends. According to Central Bureau of Statistics data, there was a 14% fall in demand for new apartments in the second quarter of 2011. What’s more, mortgage loans also witnessed a drop in demand towards the quarter end. Still, housing prices showed no signs of slowing down and continued their upward trend at a rate of 13% increase in the April-May, according to a survey by the Central Bureau of Statistics Home Prices. Israel has been witnessing a spate of protests over the past few months in the wake of rising home prices.

Yet encouragingly, the consumer price index dipped 0.3% in the July for the first time since February 2010, according the Central Bureau of Statistics. Clothing, footwear, and fuels and gasoline were key sectors that recorded a fall in prices, which offset the price rises in housing rents and cars. While Israel’s inflation had increased 3.4% over the July 2010- July 2011 period, a decline in the month of July was mainly due to softening global crude oil prices. A report by the Bank of Hapoalim forecasts lower inflation in the near term. One of the factors expected to keep inflation in check include steps recently taken by the government in response to the protests against the rising cost of living. Notably, the government temporarily slashed the excise duty on fuels in August, thereby preempting an increase in fuel prices. In addition, a reduction in indirect taxes is also expected, a move which should rein inflation in the coming months.

The Bank of Israel left its basic interest rate unchanged at 3.25% for the month of August. The outlook for Israel’s economy remains uncertain against the backdrop of geopolitical tensions and protests on the domestic front in addition to a weaker global economic outlook. The Bank of Israel lowered Israel’s growth outlook for 2011 to 4.8% from an earlier estimate of 5.2%.

Egypt: Continued political instability clouds prospects

Egypt’s annual urban consumer inflation decreased to 10.4% in July from 11.8% in June, due to a slower rise in the price of foods and beverages, according to the Central Agency for Public Mobilization and Statistics (CAPMAS). Food and beverages, which are a vital component in the consumer price index, grew at a slower annual rate of 16.7% in July compared to a 19% rise earlier in June. Consumer inflation climbed 1.2% (month-on-month) in July compared to a meager 0.4% in June. Although July’s inflation levels have been the lowest since December 2010, analysts believe that inflation will edge up in August during holy month of Ramadan as consumer expenditure picks up.

Still, the consumer confidence index declined 7.5% on a month-on-month basis in July, according to the Information and Decision Support Center (IDSC). The family income index, one of the two main indices, nose-dived 21.7% mirroring the weaker financial conditions. The confidence index in economic policies dropped 6.7%, signaling a lackluster economy weighed down by continued price rises, protests and lack of safety.

The nation’s tourism revenues, a vital component of the economy, fell 19% in July compared to a year ago, according to the Tourism Development Authority. Yet encouragingly, the rate of decline in tourist arrivals has been gradually decreasing over the months, since the peak of the uprising. Tourist arrivals had plummeted 80% earlier in February mirroring the deep impact of the revolt. However, by May the annual decline in tourist numbers was 35%. According to CAPMAS data, tourism revenues are likely to decrease to $10 billion in 2011, down from $12.5 billion in 2010.

Still, Sami Mahmoud, vice president of the Tourism Development Authority, expects a recovery in the industry by October. South Sinai, which is Egypt’s most favored tourism destination, was looking forward to a revival with the departure of former president Hosni Mubarak from the city. In addition, a period of Eid El-Fitr, the feast after Ramadan, typically attracts a number of tourists. However, it remains to be seen if the recent clashes along the Egypt-Israel border will put a damper on tourists’ arrivals and delay the recovery process.

Investments, another vital cog of the Egyptian economy, were also hit hard by the revolt. According to the central bank, foreign direct investments plunged by a whopping 124% in the initial three months of 2011 from the final quarter of 2010. What’s more, total outflow amounted to $1.97 billion, resulting in negative FDI of $163 million compared to a positive FDI of $656 million in the last quarter of 2010. In addition, the economy also witnessed mounting domestic as well as foreign debts. According to a United Nations Conference for Trade and Development (UNCTAD) report, while the long-term prospects for FDIs remain positive, political instability might continue to stymie investments in the near term.

Egypt’s foreign reserves dipped to $25.7 billion in July from $26.6 in June, according to central bank report. Still, the rate of decline showed signs of slowing down. According to the finance minister, the current foreign reserve levels were sufficient to shoulder around six months worth of import needs. Reserves prior to the uprising totaled $36 billion. On a positive note, revenues from the Suez Canal waterway, a vital source of foreign currency, clocked an 11% year-on-year rise to $449.2 billion in July, according to the Suez Canal Authority.

With revenues from tourism and industrial output adversely affected by the political turmoil, the International Monetary Fund expects Egypt’s economy to expand 1% in 2011. To boost the economy, the central bank has left its overnight lending rate and the deposit rate unchanged at 9.75% and 8.25%, respectively.

Morocco: Positive outlook despite challenges

According to a state High Planning Commission (HCP) report, Morocco’s inflation rose 1.8% year-on-year in July, beating the average forecast for 2011. Earlier in June, the central bank governor Abdellatif Jouahri had revised down headline inflation for 2011 to 1.4% from an earlier estimate of 2.1%, in view of declining food prices.

The weighting of food prices constitutes around 45% of the consumer price index. Consumer food prices jumped 3.1% in July on year-on-year basis, according to a HCP report. A Reuters report notes two other key factors instituted in July that could have added to the inflation, namely wage increases for public sector employees and higher minimum wages in the private sector, which employs a higher number of Moroccans. The Reuters report also noted that at a cost of $6.1 billion, the government has raised salaries and has increased funds allocated for food and energy subsidies in the wake of surging global commodity prices to avoid any kind of turmoil seen in the surrounding Arab nations. What’s more, Morocco expects an increase of 6% in subsidy spending for 2011, which is likely to strain the budget gap further. The budget deficit is estimated to be 4.5%-5% of GDP in 2011, versus a target of 3.5%.

Morocco’s widening trade deficit remains a concern. The country’s trade deficit surged 21% and reached a record high of $13.3 billion over the January-July period in 2011 compared to $11.1 billion in 2010, according to official data. This was mainly due to the energy import bill, which jumped 39% to $6.6 billion, and imports of wheat, sugar and maize that totaled around $1.6 billion. Total imports increased 20% to $2.3 billion in the above mentioned period. Morocco does not have any domestic oil or gas resources and is one of the world’s largest grain importers.

Total exports were up 19% to $1.9 billion in the initial seven months of 2011, driven by a 36.7% surge in exports of phosphate and its by-products to $2.0 billion. A 66% leap in the export of fertilizers boosted phosphate revenues, according to official data. Other areas with notable export increases were the clothing and textile, and electric and electronics sectors. According to a Reuters report, part of the rise in exports from these industries was due to higher demand from Europe. The report also mentions that persisting unrest in Egypt and Tunisia, Morocco’s key competitors, has resulted in a slight shift in Europe’s demand.

Elsewhere, investment and private foreign loans were lower by 14% totaling $128.0 billion at the end of July compared to a year ago, according to official data. An HCP report revealed that the unemployment rate edged up 0.5% to 8.7% in the second quarter of 2011. Urban areas registered a higher rise in the jobless rate compared to the rural areas. Rising global commodity prices have already pared down Morocco’s foreign currency reserves, which now are sufficient to cover only six months worth of imports. According to an International Monetary Fund (IMF) report, Morocco’s foreign currency reserves are expected to dip slightly by 2011-end, albeit at a level enough to shoulder over five months of import needs.

On a positive note though, Morocco’s economy is expected to expand 4.5%-5% in 2011, according to an IMF report. Factors contributing to the expansion include healthy non-agricultural GDP growth and other structural reforms. What’s more, the report also mentions that the government is likely to review public expenditure and is looking to achieve financial stability.

Jordan: Central Bank of Jordan positive about growth

The first round of talks concerning Jordan’s accession to the Gulf Cooperation Council (GCC) has been scheduled to be held September 10-15 in Saudi Arabia, according to foreign minister Nasser Judeh. This meeting is expected to review Jordan’s progress in the membership process, the advantages and disadvantages of membership, and measures Jordan can employ to maximize its benefit from the private sectors. The council presently consists of Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar and Oman. Jordan’s effort to join the GCC has been spearheaded by the foreign ministry, with cooperation from all the other ministries and state agencies.

Meanwhile, the Hashemite Kingdom is keen on getting its tourism sector, the backbone of its economy, back on its feet. This sector, which includes the vital medical and education tourism business, is also critical to Jordan’s job market. The Ministry of Tourism announced a five-year plan to boost the industry’s performance and its income to $5.9 billion by 2015. According to Haifa Abu Ghazaleh, the minister of tourism, the new strategy would entail enhancing the sector’s competitiveness, products, and services, and improving worldwide promotional programs. The government hopes to initiate the new strategy in cooperation with Jordan’s private sector and via the tourism development project, which is funded by the US Agency for International Development (USAID). To rebuild confidence in the sector, the Jordan Tourism Board (JTB), in collaboration with the private sector and the World Tourism Organization, are looking to host delegates from around 500 global travel and tourism firms, in November.

The tourism sector contributed 14% to Jordan’s GDP in 2010. However, in the wake of the Arab spring uprisings, income from this sector dropped 12% to $1.34 billion in the initial half of 2011 compared to the same period in 2010, according to a Central Bank of Jordan (CBJ) report. What’s more, the number of tourist arrivals fell 14% to 1.37 million.

Another sector hurt by the regional turmoil is information technology, which is expected to witness a decline in revenues for a second consecutive year in 2011, according to the ICT Association of Jordan. Dwindling government spending and exports, in particular, are anticipated to trim the top line in the coming months. Government spending in the IT sector totaled $35 million in 2010 compared to an average of $211 million in the previous years, including the spending in 2009. What’s more, exports to countries such as Yemen, Libya and Syria have been stopped. IT revenues slumped to $732 million in 2010 from $962 million in 2008. In an effort to shore up exports, a committee comprised of representatives from IT companies has been formed, according to the ICT Association. One of the committee’s suggestions is to set up offices in the Gulf to promote products and solutions. In addition, it is keen on encouraging exports among small and medium-sized enterprises.

Encouragingly, the cumulative foreign direct investment in the IT sector has been on an upward trend since 2001, totaling $142.5 million in 2010, according to the Jordan Investment Board. What’s more, the information and communications technology sector as a whole, surging at a rate of 50% a year, is presently the fastest-growing sector of Jordan’s economy.

Elsewhere, the consumer price index showed no signs of slowing down and continued to grow 4.7% over the first seven months of 2011 versus the comparable period last year, according to the Department of Statistics. The rise was due to price increases in transport services, rents, education, poultry and meat, and vegetables. The International Monetary Fund expects Jordan’s inflation to touch 5.5% in 2011, compared to 5% in 2010.

On a positive note, Sharif Faris Sharaf, governor of the CBJ, expects the economy to expand 3.3% in 2011, despite economic challenges. He has expressed confidence in the policy of pegging the Jordanian Dinar to the U.S. Dollar at a fixed exchange rate, which is anticipated to maintain fiscal and monetary stability. The CBJ governor also mentioned that Jordan’s foreign currency reserves worth $11.9 billion could shoulder seven month’s worth of import needs.

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Postcards from the Middle East & Africa

Jordan Jordan’s 2009 railway plan that aims to cover around 990 miles and transform the kingdom into a regional trade hub appears to be taking shape. Read more Israel Israeli consumers used Facebook to revolt against the high prices of a popular breakfast staple – cottage cheese. Read more Morocco Morocco has had a rich souk (an al fresco market) culture because of its appeal to both the Western tourist and the local consumer. But souks are losing currency these days because of a retail boom in the country. Read more

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