Less affected by the pandemic: why Arab countries are still facing economic difficulties

The international currency predicts that the economies of Arab countries in the Middle East and North Africa will contract by 5.4% in 2020-2021 due to the covid-19 pandemic and the collapse in international oil prices . (I left out Lebanon and Libya, as they face exceptional circumstances.) This means that the MENA Arab region, despite being among the least affected by the pandemic in terms of confirmed cases and death, will suffer disproportionate economic pain.

The IMF’s economic outlook for the world shows that the economic contraction has been 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 is expected to contract by 4.3 percent, the euro area, Latin America and India by 8.3 percent, 8.1 percent and 10.3 percent, respectively. Conversely, China is expected to grow by 1.9%, reflecting Beijing’s effective containment of the first epidemics.

Now look at the MENA Arab region, excluding Israel and Iran. On the public health front, Arab nations have done relatively well compared to many other parts of the world. This is confirmed by data on Covid-19 deaths per million people between December 2019 and October 2020. The ratios for the United States, European Union and South America were 673.80, 360, respectively, , 45 and 661.29. The average for the Arab world was 79.46 per million. For the most populous Arab countries – Egypt, Algeria, Sudan, Saudi Arabia, Morocco and Tunisia – the average was even lower, at 62.21 per million.

Even if there is underreporting in the figures for these countries, they should be comparable to other parts of the world with similar income levels and relatively limited state capacities to collect, process and report data.

No one knows for sure why some parts of the world are hit harder than others. However, the situation in the Arab region of the MENA region becomes even more inexplicable when you consider that some of its most populous countries, like Egypt, have never experienced full closures for long periods of time. This should have mitigated the economic impact of the pandemic, but did not. How can we explain this?

The pandemic has exacerbated the region’s already difficult mode of insertion into the global economy. Three factors stand out: the strong and persistent dependence on oil and natural gas exports as the most defining characteristic of the place of the Arab nations in the global division of labor; overdependence 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 amplified the economic impact of the covid-19 crisis. It is difficult to say that this is an exception in 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 more developed sectors of the world economy in North America, Europe and Asia.

The Arab MENA has the highest ratio of merchandise trade to GDP in the south of the world, but the trade is dominated by oil and gas as heavy exports and imports of virtually everything else. In 2019, the MENA ratio was 63.7%, compared to 41.3%, 40.6% and 28.9% for Latin America, sub-Saharan Africa and South Asia, respectively. Even if high-income MENA countries, all of which are small oil-exporting countries, are excluded, the ratio of merchandise trade to GDP would still be around 57%.

In 2013, before the collapse in international oil prices, fuel exports accounted for 71% of the MENA Arab region’s total merchandise exports. Even excluding small, high-income oil-exporting countries, the share of fuel exports was 67%. The decline in the share of fuel imports after 2014 does not indicate better diversification: in fact, total merchandise exports have declined significantly.

In addition, the fact that the EU and the United States are the main trading and investment partners of the Arab world has amplified the impact of the health crisis in these regions on the economic performance of the MENA region. The region has by far the lowest percentage of merchandise exports to low- and middle-income countries, compared to any other southern region on the planet.

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