Least hit by pandemic: Why Arab nations are still enduring economic pain

Structural issues predating the pandemic are inflicting disproportionate pain

The International Monetary is predicting the economies in the Arab nations of the Middle East and North Africa will contract by 5.4 per cent in 2020-21 due to the covid-19 pandemic and the collapse in international oil prices. (I’ve left out Lebanon and Libya, because they face exceptional circumstances.) This means the Arab MENA region, despite being among the least affected by the pandemic in terms of confirmed cases and deaths, will suffer disproportionate economic pain.

The IMF’s economic outlook for the world shows that economic contraction has been proportionate 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 to contract by 4.3 per cent, the Euro zone, Latin America and India by 8.3 per cent, 8.1 per cent and 10.3 per cent, respectively. Conversely, China is expected to grow by 1.9 per cent, which reflects Beijing’s effective containment of early outbreaks.
 

Now look at Arab MENA region, excluding Israel and Iran. On the public-health front, the Arab nations have done relatively well when compared to many other parts of the world. This is borne out by the data for Covid-19 deaths per million people in the period between December 2019 and October 2020. The ratios for the US, European Union and South American were 673.80, 360.45 and 661.29, respectively. The average for the Arab world was 79.46 per million. For the most populated Arab nations — Egypt, Algeria, Sudan, Saudi Arabia, Morocco and Tunisia — the average was even lower, at 62.21 per million.
 

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

Nobody knows for sure why some world regions are worse-hit than others. However, the situation in the Arab MENA becomes more inexplicable still when you consider that some of its most populated countries — like Egypt — never had full lockdowns for extended periods. This should have mitigated the economic impact of the pandemic, but did not. How can this be explained?
 

The pandemic has exacerbated the region’s already troubled mode of insertion into the world economy. Three factors come to the fore: the heavy and persistent dependence on oil and natural-gas exports as the most defining feature of the Arab nations’ place in the global division of labor; the over-reliance on Europe and the US as the main trade and investment partners; and the low levels of trade integration within the region itself. These longstanding structural weaknesses have magnified the economic impact of the covid-19 crisis. It is hard to say that this is exceptional to the Arab world, as the same pattern seems to apply to sub-Saharan Africa, albeit to a lesser extent. Both regions are major raw material exporters to more developed parts of the global economy in North America, Europe and Asia.
 

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

In 2013, before the collapse of the international oil prices, fuel exports constituted 71 per cent of total merchandize exports for the Arab MENA region. Even when excluding the high-income oil exporting small nations, the share of fuel exports was 67 per cent. The decline in the share of fuel imports after 2014 did not indicate better diversification: In fact, total merchandize exports shrank dramatically.
 

In addition, the fact that the EU and the US are the main trade and investment partners of the Arab world has amplified the impact of the health crisis in those areas on the economic performance of the MENA region. The region has by far the lowest percentage of merchandize exports to low- and middle-income countries, compared with any other region in the global south.