4/6/13 ViewsWire

Our site uses cookies. By continuing to browse you are agreeing to our use of cookies.
Review our cookies information page for more details.

Middle East/Africa economy: EIU's monthly economic outlook

April 1st 2013

FROM THE ECONOMIST INTELLIGENCE UNIT

Middle East & Africa growth and inflation

(% change)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Middle East & North A f rica
Real G D P growth 4 .6 1 .5 5 .3 2 .5 3 .6 3 .3 4 .3 4 .6 4 .9 4 .9
I nflation 1 3 .7 6 .4 5 .9 8 .8 1 0 .9 8 .9 7 .2 7 .3 7 .7 7 .8
Sub-Saharan A f ricaa
Real G D P growth 4 .8 1 .2 4 .5 4 .6 4 .2 4 .4 4 .9 5 .0 5 .3 5 .7
I nflation 1 1 .0 9 .0 7 .5 7 .7 8 .0 6 .6 5 .9 6 .5 6 .7 7 .1
a Refers to Angola,
Kenya, Nigeria and South Africa only.
Source: The Economist Intelligence Unit.

Download the numbers in Excel

Regional growth will be bolstered by a strong performance in the GCC

With the second anniversary of the onset of the Arab Spring under way, the political atmosphere
across the Middle East and North Africa (MENA) remains febrile. The interim governments in
Tunisia, Libya and Yemen are struggling, to varying degrees, to impose their authority and
organise an orderly transition, while Egypt is in danger of reverting to wholesale authoritarianism.
Syria, meanwhile, is embroiled in a civil war; not only is the violence spilling over into Lebanon,
but a flood of refugees is pouring over the country's borders. In contrast, the Gulf Co-operation
Council (GCC) states remain relatively tranquil, although Bahrain continues to witness
intermittent demonstrations and Kuwait's authorities are clamping down on increasingly vocal
opposition movements.

Economic growth in the MENA region will weaken slightly in 2013 as the impact of a host of fiscal
stimulus measures introduced in 2011-12 gradually eases, before picking up more strongly in 2014
(in keeping with the global economic trend) and beyond. However, the headline figure for 2013
masks a considerable divergence between positive prospects for oil-producing countries (except
for Iran) and mostly negative prospects for non-oil-producing states. The expected contraction
in Iran this year, due to weak oil output and sanctions increasingly affecting non-oil activity, will
weigh on regional growth prospects.

Meanwhile, a number of major non-oil exporters are still suffering from the political and economic
fall-out of the Arab Spring, notably Egypt, which we expect to remain convulsed by internal strife
this year, with some recovery in economic activity expected, at the earliest, in 2014. In
contrast, high oil prices and expansionary fiscal policies will sustain strong rates of growth in
Saudi Arabia, the region's largest economy, and the Gulf States. In North Africa exports of goods
and services (tourism, in particular) will be limited by weak demand in Europe. We expect
stronger regional economic growth in the second half of the forecast period as hydrocarbons
output continues to rise, oil prices stabilise at high levels and some of the large infrastructure
projects in the GCC countries start to come on stream. Even so, the economic outlook for the

region remains highly uncertain given ongoing political turbulence and continued tensions over
Iran's nuclear programme.

In his second term, the US president, Barack Obama, will hold firm on his policy of isolating Iran
diplomatically and economically. This makes it likely that the pattern of an escalation of tensions
followed by negotiations is likely to persist. However, Iran's weakening economy may reach a
point where diplomatic posturing is no longer affordable and the leadership is forced into a
compromise at the negotiating table. For now, the Iranian regime remains defiant. A clash
sbs-libprox.sbs.ox.ac.uk:2169/index.asp?layout=ib3PrintArticle&article_id=1460298130&printer=printer 1/3
4/6/13 ViewsWire
compromise at the negotiating table. For now, the Iranian regime remains defiant. A clash
between Israel and Iran remains a possibility, particularly as figures in the Israeli government are
sceptical about the benefits of diplomacy and sanctions, but in the near term domestic politics
appears likely to be the focus of Israel's leaders.

Longer-term African prospects are good despite the currently gloomy backdrop

Despite the relatively gloomy external backdrop, Sub-Saharan Africa is expected to grow by
4.4% in 2013 and 4.9% in 2014. Growth will be supported by a number of factors. Several of the
oil-exporting countries in the region (including Angola, Cameroon, Chad, Equatorial Guinea and
Ghana) will benefit from rising hydrocarbons output. New mining production in several countries
(for example, Niger and Sierra Leone) will also be a positive factor for growth. Africa will also
benefit from continuing strong Chinese investment inflows as the world's second-largest economy
seeks to lock in the supplies of energy and natural resources required to meet its ambitious long-
term development goals. Spending on infrastructure will need to increase if Sub-Saharan Africa is
to achieve sustained growth in the medium to long term. Domestic demand, driven by
urbanisation and an emerging middle class, will also be an important factor supporting overall
regional growth. Nevertheless, the general operating environment will remain difficult in a large
number of Sub-Saharan states. Government bureaucracy, corruption, infrastructure bottlenecks,
skills shortages and structural difficulties will continue to present major challenges.

The growth outlook for South Africa is well below the regional average

Economic growth in the region's largest economy, South Africa, will be significantly below the
regional average. Real GDP growth has been revised down slightly for 2013 to 2.8% (from 3.1%).
Key economic indicators, particularly in sectors with greater export exposure such as mining and
manufacturing, suggest that growth will remain relatively sluggish. Consumer spending will
weaken in the face of slow job creation, high debt levels and subdued economic activity, despite
low interest rates, brisk real wage growth and adequate credit availability. Activity will be held
back by the euro zone debt crisis and the residual impact of widespread and unauthorised strikes
across a number of key sectors in 2012; new strikes will also break out in 2013. The government
will remain supportive of growth through an ongoing fiscal stimulus, although private investors will
be cautious, especially given uncertainty about some government policies. The risk of recession
is low, but growth will be too sluggish to cut the high unemployment rate, which will continue to
constrain aggregate demand. While prospects will improve steadily in line with the gradual global
economic recovery, persistent structural constraints, including skills shortages, high
unemployment, crime, corruption and inefficient parastatals, will act as a drag. Fiscal
consolidation will also affect both household and government consumption, while uncertainties in
the build-up to the 2014 election may deter private investment. On the plus side, the expansion
of the black middle class will facilitate consumer spending on durable goods and services such as
telecommunications and banking.

Insecurity and infrastructure will negatively affect Nigerian prospects

We forecast real GDP growth of 6.8% for Nigeria in 2013, slightly below the annual average of 7%
over the past decade. This reflects global economic uncertainty, the damage caused by the
severe flooding in late 2012 and constraints in infrastructure and the business environment. The
remainder of the forecast period will gradually see a more favourable global and domestic picture
emerge, which will allow real GDP growth to average a little over 7% a year in 2014-17 (with a
slight dip in the election year of 2015). However, this is still below the double-digit levels required
if the country is to see a large-scale improvement in the population's living standards. This is
primarily the result of the dire state of Nigeria's infrastructure, notably the electricity supply.
Furthermore, continuing flare-ups of political unrest will constrain growth, particularly in the
north, and violence in the Niger Delta will periodically affect oil and gas production. Oil production
will also be constrained by delays in crucial new legislation that have prompted many oil
companies to defer investment decisions until the policy environment is clearer.

Recent elections will have large bearing on the Kenyan outlook

Prospects for political stability in East Africa's largest economy, Kenya, have improved following
the largely peaceful general election on March 4th. Uhuru Kenyatta will become Kenya’s new
president after capturing 50.1% of the vote (on a high, 86% turnout) compared with 43.4% for
Raila Odinga. However, Mr Kenyatta crossed the 50% threshold needed to avoid a second round
run-off by only a very small margin. Given the failure of electronic counting and transmission
systems, which obliged the Independent Electoral and Boundaries Commission (IEBC) to resort to
manual tallying, it is feasible that small errors have determined the election outcome. Mr Odinga
will therefore challenge the results in the Supreme Court, which could order a recount or a fresh
sbs-libprox.sbs.ox.ac.uk:2169/index.asp?layout=ib3PrintArticle&article_id=1460298130&printer=printer 2/3
4/6/13 ViewsWire
will therefore challenge the results in the Supreme Court, which could order a recount or a fresh
ballot, or dismiss the appeal. Based on the assumption that Mr Kenyatta is sworn in as president,
there are both positive and negative aspects to his tenure. His first-round victory has avoided
the need for a run-off, which would have perpetuated uncertainty and heightened the risk of
violence. Mr Kenyatta is also unlikely to preside over any unwelcome policy shifts, especially on
economic matters (although the same would have been true of Mr Odinga). On the downside, the
International Criminal Court (ICC) cases facing Mr Kenyatta and his vice-president elect, William
Ruto, could disrupt government functioning because of the need for them to appear in court in
The Hague. Both stand accused of facilitating widespread violence after the 2007 election. The
defendants are committed to attending, but the trials will strain relations with key Western
partners (which maintain policies of having “essential” contact only with ICC suspects) and could
drag on for years.
The Economist Intelligence Unit
Source: Country Forecast
© 2013 The Economist Intelligence Unit Limited. All rights reserved.
About us | About ViewsWire | C ontact us | Privacy statement | Terms of access | C ookies | Help

sbs-libprox.sbs.ox.ac.uk:2169/index.asp?layout=ib3PrintArticle&article_id=1460298130&printer=printer 3/3