Economic success for Menap hinges on greater regional trade

Creative Commons/Jakob Polacsek

• New barometer tracks where region stands compared to other countries
• Exports within Menap partners account for only 2.9% of GDP
• Lowering trade costs and other steps could help

Many countries in the Middle East, North Africa, Afghanistan and Pakistan (Menap) region are enjoying growth, but new research has found that intra-regional exports account for only 2.9 percent of total gross domestic product. 

This compares to a global average of 7.9 percent, and 22 percent across the European Union (EU), Norway, Switzerland and the UK, according to the inaugural Menap Economic Integration Barometer, developed by Dubai-based retail and property conglomerate Majid Al Futtaim (MAF) in partnership with McKinsey Global Institute. 

Launched at Davos 2023, the barometer has been developed to systematically track progress on an annual basis, with the aim of offering a deeper understanding of the Menap region’s interconnectedness with global markets.

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The dearth of trade between countries in the region stands in stark contrast to the Menap region’s exports to the rest of the world. By this measurement Menap surpasses other regions, with global exports valued at 34 percent of GDP compared to a global average of 25.5 percent. 

The disparity between Menap’s intra-regional and external trade figures can be explained by the fact that 22 percent of Menap’s trade to the world stems from fossil fuels, with an additional 7 percent from metals and chemicals, the MAF research noted.

“We have seen a number of impressive and important steps taken to foster improved intra-regional prosperity,” Ahmed Galal Ismail, CEO at Majid Al Futtaim, Holding, said. 

“While extremely encouraging, these efforts have also highlighted the development disparity across the Menap region.

“We recognise that now more than ever in this age of geopolitical instability, economic uncertainty and climate crisis, that our success hinges on our collective efforts to champion improved economic integration across our region.” 

Although the motivations may differ, recent bilateral activity between Menap countries showed that there is a growing commitment to improve economic integration. 

In June last year, Egypt and Saudi Arabia signed 14 deals worth $7.7 billion ranging from renewable energy to petroleum, food and fintech. They included a $1.5 billion agreement between Saudi Arabia’s ACWA Power and the Egyptian Electricity Holding Company to build a wind power plant. 

Among the other agreements was the development of the multi-purpose terminal at Egypt’s Damietta port and the establishment of a $150 million “pharmaceutical city” by Egypt’s Pharco Pharmaceuticals in Saudi Arabia. 

“Several steps have been taken to foster intra-regional trade,” said Ali Metwally, Mena economist and risk analyst at Infospectrum. 

“The UAE, Egypt and Jordan also signed a number of deals mid-last year worth $10 billion to increase industrial cooperation between the three countries in priority sectors such as pharmaceuticals, petrochemicals, textiles and agriculture.”

The lifting in January 2021 of the GCC blockade on Qatar, which lasted three and a half years, has also led to a recovery in investment outflows from Qatari businesses to other Middle Eastern countries, particularly Saudi Arabia and Egypt. And the GCC countries’ respective Vision programmes aimed at diversifying their economies should help boost non-oil trade as a portion of GDP within the Menap region. 

Abu Dhabi, Bahrain and Qatar are all currently pursuing Vision 2030 programmes, while Dubai has several growth plans including the Dubai Strategic Plan 2030 as well as We The UAE 2031. Meanwhile, Kuwait has committed to Vision 2035 and Oman is focused on Vision 2040. 

Reuters/Youssef Boudlal

Arguably the most ambitious of all is Saudi Arabia’s Vision 2030 programme which aims to diversify non-oil exports and increase their share in non-oil GDP from 16 percent to 50 percent in 2030. 

“We are likely to see a gradual increase in non-oil trade as a percentage of GDP in the next few years, especially among Gulf countries, supported mainly by relatively higher oil revenues and stronger fiscal positions,” Metwally said. 

“Countries in the region are not only increasing investments in manufacturing, healthcare, agriculture, renewable energy, logistics and utility sectors to achieve their diversification agenda, they are also increasing non-oil private sector participation.” 

Saudi Arabia is encouraging increased private sector involvement in both the healthcare and industrial sectors. Egypt has also announced incentives for private investors, especially those who are planning to invest in the industrial sector, in a bid to achieve its $100 billion exports target by 2025.

Progress is being made and countries are relaxing some trade barriers, but industry experts noted how the lack of a homogenous investment framework and a protectionist mindset continues to restrict trade flows. 

“The GCC market is quite fragmented,” Joe Hepworth, CEO of Dubai-based trade support company British Centres for Business, said. 

“Last year Saudi was starting to make things difficult for importing goods unless certain independent custody visitors criteria were fulfilled.

“Meanwhile, Egypt is hugely protectionist with restrictive import duties which stifle trade and mitigates against growth in fast-moving consumer goods.

“In the course of our work with companies we always get asked the question, ‘do I honestly have to have a licence in every country in order to do business there? And do I really need to have a trade licence in each emirate?’.

“While it is possible to use an agent or distributor to sell into the wider region, many businesses wonder why there’s a lack of a common framework among, for example, the emirates of Abu Dhabi, Dubai and Sharjah, let alone among the UAE, Saudi and Kuwait, and then Pakistan.”  

A report co-authored by MAF and McKinsey, and launched at the May 2022 World Economic Forum annual meeting, noted “trade costs, including costs related to transportation, time delays, border controls etc, represent 20 to 40 percent of the final delivered price” for non-oil goods, negatively affecting businesses and the consumer.

Metwally highlighted clear steps that could be taken to improve intra-regional prosperity, such as lowering non-tariff trade costs, accelerating and increasing reforms of legal frameworks for the investment environment, and increasing data transparency.

He added that improving credit access and logistics infrastructure – both key enablers of trade facilitation – would also enhance intra-regional trade.