The Middle East's Economic Troubles

When the world focuses on the Middle East and North Africa, it typically focuses on the range of conflicts and political troubles that are present across the region.  Meanwhile, the news surrounding the region’s economy has also been quite poor as a range of new challenges is confronting the leading economies of the region.  Not only do these challenges pose a significant threat to the economy of the region over the near-term, but also they are severe enough to threaten the region’s long-term outlook and its level of stability.  If the leading countries of the region cannot solve their economic problems in a timely and long-lasting manner, the entire region faces a very difficult future.

In recent years, a number of factors have combined to inflict serious damage on the economic of the Middle East and North Africa.  First, the Arab Spring deteriorated into anarchy and conflict in many countries in the region, destroying the economies of countries such as Syria, Libya and Iraq.  Secondly, this unrest prevented the region from recovery the losses in foreign investment that were initiated by the global financial crisis and now, foreign investment into the region has declined sharply in recent years.  Third, the region’s more diversified economies (Turkey and Iran) have suffered from the decline of European export markets (in the case of Turkey) or from international sanctions (in the case of Iran).  Finally, the sharp fall in oil prices since mid-2014 is having a massive impact on the region’s oil producing economies and the longer these low oil prices remain in place, the more severe the impact will be on these economies, particularly in terms of much lower levels of government spending.

So far, the economic situation in the Middle East and North Africa is recoverable.  First, Saudi Arabia continues to exert the greatest influence over global oil prices, so if it sees that the economies of its allies (as well as its own economy) are suffering from prolonged low oil prices, it can move to return oil prices to their previous high levels.  Second, the tentative economic recovery underway in Europe is an opportunity for exporters in places such as North Africa and Turkey to recover from the downturn of the past six years.  Finally, the region is home to some of the world’s fastest growing domestic markets thanks to extremely high birth rates and a young population.   If stability can take hold, this huge potential for domestic demand will attract more foreign investment to the region, helping it to diversify its economy and ensure longer-term growth.

Unfortunately, the political situation in the Middle East and North Africa shows little signs of improving as wars continue in a host of countries and as the region’s sectarian divisions grow wider and more confrontational.  Without more stability, the region will struggle to attract investment and diversify its economy.  However, if the economic situation continues to deteriorate, this will set the stage for conflict and political unrest to spread to other countries in the region.  This could destabilize what are now somewhat stable countries such as Egypt and Saudi Arabia, the two lynchpins of the region.  As the region’s population grows rapidly, the demand for jobs and economic opportunities will soar, and if the region is unable to attract more investment and diversify its economy, this demand will not be met, adding to the already considerable tensions in the region.