Instability and violence across MENA are still the main risks to the regional economic outlook, said Aon in its December 2019 Political Risk Newsletter. War is continuing to rage in Yemen and the situation remains tense in Syria, taking a toll on countries like Jordan, Lebanon and Iraq.
Half of the 14 countries across the MENA region either have a high or very high risk rating for the fourth quarter of 2019. Across MENA though, no country experienced a change in its overall risk rating in the same quarter.
On the external front, growing global trade tensions are likely to trigger significant fiscal and financing pressures for MENA countries, clouding economic recovery.
Best and worst ratings
The UAE and Qatar had the strongest rating of medium low, followed by Kuwait, Oman, and Saudi Arabia, which had a medium risk level. In terms of political violence, Egypt, Iraq, Lebanon, Syria, Palestine, and Yemen all have a very high risk rating, reflecting the internal and external conflicts these countries continue to face.
Risk ratings are standardised across each location, on a six-point scale ranging from low, medium low, medium, medium high, severe, to very high, with all risks updated quarterly.
Country outlines
Yemen is the riskiest country in the region, with an overall risk rating of very high which, after four years of war, should be of little surprise. The security situation may escalate following drone attacks on state-owned Saudi Aramco oil processing facilities in eastern Saudi Arabia in mid-September.
Saudi Arabia has an overall risk rating of medium, while its risk of political violence remains high. Tensions between Saudi Arabia and Iran are still a pertinent issue for the entire region, as well as the ongoing conflict with Yemen. Saudi Arabia’s attempts to politically and economically isolate Qatar have also been largely unsuccessful. Relations with the EU have soured following the murder of journalist Jamal Khashoggi in November 2018, but bilateral relations with the US have improved under the leadership of US President Donald Trump.
Saudi Arabia is currently attempting to lessen its dependence on the oil and gas industry through its Saudi Vision 2030 project. It is making sizeable investments in manufacturing, technology, and mining projects across the country. However, ongoing weak global oil prices have weakened the country’s fiscal position, although overall public debt remains low by EM standards at around 20% of GDP.
Iran’s overall risk rating remained very high due to the US decision to re-impose sanctions, resulting in a collapse of the Iranian currency and the wider economy. Recent anti-government protests in mid-November amid petrol price hikes have led to the deaths of dozens of people. To contain the demonstrations, the government has shut down the internet, which will likely result in more widespread violent outbursts.
Egypt’s overall risk rating remains high, with a slight deterioration in its banking sector vulnerability rating in 4Q2019. In addition, Egypt has a very high risk rating in political violence, and high risk ratings in legal and regulatory risks, supply chain disruptions, political interference and ability of government to provide stimulus.
Nevertheless, Egypt’s economy is doing reasonably well, with growth set to accelerate to nearly 6% over the coming few quarters. In addition, Cairo is wrapping up its IMF-backed economic reform programme.
Oman’s overall risk rating is medium, with a slight deterioration in the banking sector vulnerability sub-category. Nevertheless, risks are relatively low compared to regional peers. Oman remains highly dependent on the energy sector for growth, which accounts for around 60% of export revenues and three quarters of government revenues. The sultanate does not possess large energy reserves, and reserves are diminishing quickly. M