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16-04-23

MENA Region's Economic Revival Driven by Mega-Investment Projects, Fiscal Prudence, Demographics

(MENAFN) The economies of the Middle East and North Africa (MENA) region are experiencing a revival in growth, according to a report by Franklin Templeton's Emerging Markets Equity Group. The report attributes this growth to mega-investment projects, rising energy prices, greater fiscal prudence, and better demographics. The Gulf Cooperation Council countries, particularly Saudi Arabia, the largest economy in the region, has significant expenditure plans, with the Saudi government aiming to invest nearly USD2 trillion in the domestic sector by 2030 as part of its Vision 2030 economic reform strategy.

Giga-projects have been a key pillar of the MENA region's multi-year reform effort, diversifying the economy away from oil, attracting talent and money, and creating jobs for a youthful population. Despite local and international headwinds, the initiatives have continued to move forward, demonstrating the government's long-term commitment, even amidst fluctuating oil prices and the pandemic. The government has attempted to separate the outcomes of the projects from fluctuations in their fiscal condition and oil prices by mandating the country's sovereign wealth fund as the independent sponsor of these projects with its own balance sheet.

The MENA region's weight in the MSCI Emerging Markets Index has risen from 1.6 percent in 2016 to 7.7 percent in 2022, driven by the implementation of various market-based changes in recent years, including initial public offerings, privatization, and increased foreign ownership limitations. Saudi Arabia is the largest single market, accounting for 4.1 percent of the index, and this figure is expected to rise.

In addition, the demography of the GCC economies, notably Saudi Arabia, is heading in the opposite direction to the rest of the world, which is grappling with the challenges of declining birth rates and rising dependence ratios. The Kingdom's predicted rise in the economically active 25-64-year-old population is among the fastest in developing countries, at 19.6 percent between 2019 and 2039.

The report also forecasted a favorable background for MENA equities markets in 2023. However, it stated that the area is not immune to risks such as the impact of interest rates hike on the economy. The report noted that the link between oil prices and the MENA economic and market outlook is gradually fading as a result of economic diversification and an increasing dependence on sovereign wealth funds to support investment in the area.
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