PCR podcast: two faces to the recovery in the Middle East and North Africa

As we emerge from the pandemic, an acute difference in the region has appeared as some countries struggle while others show strong prospects

The coronavirus pandemic has created an economic crisis such as the world has never seen. The downturn was followed by an unprecedented rebound. It all happened so fast. It left us with a torrent of numbers and seemingly inextricable questions.

Welcome to PCR, a special limited series by The National, in which we try to make sense of the numbers and answer important questions on the post-Covid recovery.

Listen to prominent economists and business leaders as they explain the challenges and opportunities of a unique and often complex economic recovery.

Join Mustafa Alrawi, assistant editor-in-chief, as he explores the many features of the post-Covid recovery.

Episode 7: Middle East and North Africa - one region, worlds apart

Nowhere in the world has the unevenness of the economic recovery been more pronounced and acute than across countries in the Middle East and North Africa.

Some Mena countries already struggling with economic problems before the pandemic. Others, including Egypt and GCC countries, were in the midst of huge structural reforms when the pandemic hit.

In a region already defined by many imbalances and economic contrasts, what does the post-Covid recovery look like?


Jihad Azour, director of the Middle East and Central Asia department at the International Monetary Fund.

Alia Moubayed, emerging markets economist

Narrated by: Mustafa Alrawi, The National’s assistant editor-in-chief

Episode transcript:

Mustafa 00:11

It was an eerie photograph that made the headlines around the world, one that perhaps best captured the scale of what was to come not only in the Middle East, but also around the world. That was back in March 2020. The picture was that of an empty and silent Grand Mosque in the holy city of Makkah in Saudi Arabia. And it was an emotional moment, an historic event and an unprecedented move to limit the spread of the coronavirus. Saudi authorities cancelled the Hajj pilgrimage in 2020. The previous year, in August 2019, the same site welcomed, in the span of five days, more than 2.5 million worshippers from around the world. But these were different times and, indeed, a different world. It was before the pandemic. Welcome to PCR. I’m Mustafa Alrawi, your host on this special podcast series from The National in which we discuss the post-Covid-19 recovery. In this episode, we focus on the impact of the pandemic on economies in the Middle East and North Africa, as we try to understand how the recovery is playing out.


The region was also part of what we saw globally, in terms of trends.

Ayesha 01:45

Jihad Azour is director of the Middle East and Central Asia department at the International Monetary Fund:


One of the first epicentres of this crisis was in the region, with the spreading of the virus in several countries, starting with Iran. What we saw over the last year and a half was a massive response by governments to address the crisis. In the beginning this was through providing support to a certain number of directly affected groups and sectors. And then, gradually, with the development of vaccines, we saw a big move into accelerating vaccination. And the vaccination is uneven. You have countries who have succeeded to have vaccination rates that are among the best globally and you have still some countries where vaccination did not exceed 10% of the population. In addition to that, you have also a focus on the region. Nobody was expecting to see such huge volatility in the oil price and to see oil prices going down to the low twenties, and then return to levels that were not seen since 1973.

Mustafa 03:06

Nowhere in the world has the unevenness of the economic recovery been more pronounced and acute than across countries in the Middle East and North Africa. How did the pandemic impact the economic landscape across countries in the region?


I think, for us to be able to understand how the recovery is shaping up and why it is it uneven, it’s extremely important for us to remind ourselves of how much the Mena region has suffered in terms of losses over the past year and a half or two years. Because, of course, of Covid, but also the other shocks that are competitive, and most importantly, the oil shock that resulted from that.

Ayesha 03:49

Alia Moubayed, emerging markets economist:


The output cost of Covid-19 in the Middle East and North Africa region is about $200 billion, an estimated cost comparing, basically, the loss of gross domestic product had Covid not happened. This is a big number. And this, of course, is not accounting for the loss of lives, or also what I also consider a loss, which is the loss in the fiscal space that the region has incurred, because we had to spend a lot to counter the crisis. And we know that many of our countries now are much more indebted than before, at a time where developmental needs still require a lot of financing. But also we have seen a considerable deterioration on the balance sheets of both the corporate sector and the banking sector across the region. And all these are very important elements that were impacted by Covid. And that will impact our readiness and our ability to recover and rebound quickly and in an orderly fashion.

Mustafa 05:10

Some Middle East North Africa countries were already struggling with economic problems before the pandemic, while others like Egypt and GCC countries were in the midst of huge structural reforms. With a pandemic hit in a region already defined by many imbalances and economic contrasts, what does the post-Covid recovery look like? Where do we stand now?


Where do we stand now? We are in a transition moment. Economies are recovering, and this year, we’ll see a level of growth that, on average, in the region will exceed 4% 4.1%. In the next year or two, we will see the same level of growth.

Ayesha 05:54

Jihad Azour, director of the Middle East and Central Asia department at the International Monetary Fund:


There are a lot of uncertainties. Our first uncertainty is on the speed of vaccination, and the risks of next waves. The second uncertainty is on prices. Prices of food and basic commodities went up. And the big question is, is this going to be a pattern or not? Our analysis is showing that this is a transitory phenomenon and that prices will increase this year. And gradually we’ll start receding in 2022 and onward, but also there are uncertainties on how to address the scarring that affected several sectors. Several sectors were directly affected by the crisis. And we are currently in the process of, I would say, assessing the full impact of this crisis. Of course, there are groups that were more affected than others: the youth, women, those who are working in the informal sector, those were more affected. Those who are working in technology or in digital sectors were able to recover faster. Where do we stand today? We stand in a situation where with this recovery, there is still a certain number of long-term priorities that needs to be addressed. We need a higher level of growth because the level of unemployment that grew after this crisis is the highest compared to the recent previous crisis. We are on average at 11.5% unemployment. And this is much higher for the US. We need to address the issue of alarm, allowing everybody to get access to vaccines, which requires regional and international co-operation. We need to address, for countries in which that is high, how to reduce it because otherwise this will destabilise the economy. And we need to understand what will be the next wave of growth and globalisation, and for the region to adjust to that. Therefore, it’s a fascinating moment where things are progressing, but the progress will still require additional work, additional vigilance. And risks are still also looming in the background.


There are some determinants of the recovery that we are seeing across the region being very different and enabling countries to be more advanced than others.

Ayesha 08:44

Alia Moubayed, emerging markets economist:


Firstly, we see clearly that what is impacting, unevenly, the recovery is first the level of vaccination. So it's very clear that countries that have higher vaccination rates - and this is very evident in rich countries, particularly in the Gulf or countries that have better health systems - with that, because at the initial stage, their health systems were better or because they have pumped a lot of investment into the health sector, the recovery is much easier, particularly as new waves of Covid are hitting.

Mustafa 09:21

The stock gap and vaccination rates between various Middle East North Africa countries is both alarming and indicative. Indeed, there is now a well established correlation between higher vaccination rates and faster economic recovery. As it turns out, countries like the UAE and Saudi Arabia now top the Bloomberg Covid Resilience Ranking, a monthly global snapshot of where the virus is being handled the most effectively with the least social and economic upheaval. In addition to vaccination rollouts, what other determinants can explain how some countries in the Mena region have already exited the crisis, while others seem to be embroiled in more economic woes?


Another determinant that is determining the unevenness is also whether you are an oil exporter or an oil importer, because the recovery is coming at the same time as a rebound and the rally is in commodity prices and particularly oil prices.

Ayesha 10:22

Alia Moubayed, emerging markets economist:


So that is creating, again, this divide that long has defined the region in various episodes, the haves and the have-nots. And, obviously, the recovery is going to be much easier in those oil-exporting countries. The difference between oil exporters and oil importers and the impact of the oil price shock that is accompanying the recovery is a major determinant of this unevenness. The third, which is corollary, as I just explained, is the ability to provide continued policy support. For example, countries in the Gulf obviously have the ability to continue providing this policy support. And we are seeing that in Saudi Arabia or in UAE, although they are gradually phasing it out. But also some countries like Egypt, which have built it smuggle around before Covid but also into the Covid through letting droves be public investment driven to absorb the huge amount of new entrants into the labour market for them. And because they are continuing their fiscal reforms, they are being able to continue to provide public investment support to support this recovery. And this is why you are seeing Egypt being one not only in the region but also globally in emerging markets, which have been able to maintain a plus-4% growth throughout its opposite. So the policy support is also a factor in differentiation.

Mustafa 12:03

The pandemic caused a major economic slowdown in 2020. As a result of this downturn, oil demand declined sharply, leaving prices as low as $40 a barrel. However, this situation proved to be transitory. The fast and robust economic rebound that followed soon translated into a spike in demand for oil and gas, driving prices as high as $90 a barrel as of January 2022. Higher oil prices have a significant impact on countries in the Mena region, and their effects differ significantly between oil producers and exporters. Saudi Arabia has recently announced its budget for 2022, including a surplus of about two and a half percent of GDP, the first surplus since it went into a deficit after oil prices crashed from that peaks in 2014. Oil prices may well be important revenue sources for some countries in the Mena region. But many countries also depend on travel and tourism. From Egypt to Morocco, from Dubai to Riyadh, travel and tourism are one of the pillars of the reforms aiming at diversifying and modernising these economies.


Also in the region, because it’s specific, is really also what we’re seeing in terms of what’s happening in the tourism sector, which is also, of course, related to vaccination.

Ayesha 13:31

Alia Moubayed, emerging markets economist:


Like, for example, Dubai and UAE, but also parts of Egypt, where you have been able to ensure that the vaccination rates of your population is high in Hurghada and Sharm El-Sheikh regions and able to attract gradually tourists back to the regions have also, we are seeing any poverty being fooled by those elements. Very clearly. One last element that will determine the recovery, maybe not in the short term but more in the medium term, is also the ability of countries and their commitment to stay the course with reforms, despite the crisis, so countries that have been able to maintain some level of fiscal discipline through the crisis and press down with reforms, like Saudi Arabia, still increasing the at rates in the middle of the Covid crisis in order to stem the huge impact on its fiscal on Egypt, for that matter, continuing with structural reforms. On the fiscal side, the same in Morocco. All these reforms will pay off in the medium term, and will ensure that productivity growth in the medium to long term in those countries will be higher than those countries where reform was delayed or actually stopped.

Mustafa 15:01

While countries like the UAE, Saudi Arabia, Oman, Egypt and Morocco are witnessing spectacular economic rebounds following the pandemic, many other countries in the Mena region remain gripped by economic, fiscal and social challenges, in addition to political tensions. This is particularly true of Iran, Lebanon, Iraq, Libya and Tunisia. So looking at this contrasting and often complex economic map of the Mena region, it’s only fair to wonder whether the region as a whole is indeed out of trouble.


Yes, we are in recovery. But I couldn’t say that we are out of trouble. We are in recovery because the economy is bouncing back.

Ayesha 15:43

Jihad Azour, director of the Middle East and Central Asia department at the International Monetary Fund:


So a number of sectors have reopened, a certain number of activities are recovering, services are back, schools are opening. We see a certain number of activities regaining momentum, but there are still challenges, you know, that stabilisation is the first concern. The vulnerability of the corporate sector, especially at the small and medium size, is a concern. And in our report this year, we focus on that weak unemployment recovery is also a concern and climate issues are also a concern. And there are a certain number of other broader issues in which the global developments will dictat, or will decide, what would be the course of action and how trade will recover and how fast they can recover. We saw some challenges between supply and demand of goods globally, what we expect in terms of inflation. Is it going to be the case? And we see prices going down gradually, next year or not. And geopolitics is still challenging both at a traditional level and also at the international level. And, therefore, yes, this year is better than last year. Yes, it’s encouraging to see that vaccination is helping us to protect lives. Yes, we see that policies made a difference last year, and government matters. Going forward, we should not say that the job is done and that we are out of the risks. On the contrary, I think it’s a call for action, what we are in today, and action has to be on several fronts. And those fronts require not only the state you need, you need the public, you need the private [sector] and you need the people to come together in order to address and recover, address the crisis and recover from.

Mustafa 17:58

The pandemic and the subsequent economic recovery have accelerated digital and green transitions in Europe, the US and China. But what about the Middle East and North Africa? What are the main trends emerging during the post-Covid recovery?


We’re still trying to understand how much, actually, the post-Covid recovery is, and the way corporates and governments have adapted to the shock, will influence their future policies and behaviour.

Ayesha 18:36

Alia Moubayed, emerging markets economist:


But I think there are, at least in my view, four sort of general themes, particularly also in our region, that we are starting to see and we see it in some indicators. I think, first of all, is the move towards greater digitisation and reliance on the digital economy, where that in the way the governments of the region are working, interacting with their own citizens, interacting with business or interacting with other governments, right? For example, much of the increase in tax revenues in Egypt throughout these last 12 to 18 months, also in Morocco, has been because there has been an increase in digitisation of tax administration and that is intense is important. So digitisation as a whole is going to increase efficiency and productivity of the public sector, reduce its cost and hopefully make it more responsive to citizens, and this is also in the private sector. We are seeing more and more companies either moving to hybrid ways of work or investing more in digital transformation, in e-commerce, reducing their physical presence and using the digital space for the provision of goods and services. And I think that that’s one aspect.

Mustafa 20:17

The fast economic recovery has also created many global challenges such as trade disruption and high inflation. How are these factors impacting countries in the Mena region? Consumer price inflation in the Middle East and North Africa is forecast to remain elevated in 2022, at an annual average of 14%. Low-income countries in the Mena region are likely to feel the impact of higher food prices more than GCC countries. Is there a way for new regional strategic co-operation to address food security issues in the medium and long term?

Ayesha 20:55

Alia Moubayed, emerging markets economist:


Another aspect, also, that is starting to take shape, but maybe in our region a little bit less forcefully, is the result of what we’'re seeing in terms of disruption of the supply chain globally, which has sparked this sort of wave of inflation. That is creating huge challenges, both political and social, in many of our countries, because we import a lot of what we consume. But also in our region, we rely on fixed exchange rates and that in itself, amplifies these inflationary shocks in some countries. So we are seeing, in parts of the world, a move towards regional localisation through regional integration and trade. And I think putting into effect many of these trade agreements that were in the region, reducing barriers and tariff and non-tariff barriers, is a way to go in order to benefit from this going local into the production chain.

Mustafa 22:12

Government is not the solution to our problem. Government is the problem, said Ronald Reagan in his inaugural address in 1981. Today, in 2020, some would argue the pandemic has proved the late US president utterly wrong. As it turned out, in many countries, government was indeed the only solution to all sorts of health crises, economic challenges and financial problems posed by the pandemic. It was yet more proof of the central role governments are called to play in times of crisis. From America to Europe, in Asia and in Latin America, the pandemic offered a historical moment for governments to step in and provide policies and relief for households, workers and corporates. In a way, the pandemic redefined the role of the government. And in many ways it reversed the public perception of their public institutions. In the Mena region, the pandemic and the economic recovery have been a serious test for governments and their ability to provide economic support, health management and, most importantly, to chart the path out of the crisis with a vision adapted to a post-Covid world. Naturally, government performance greatly differed from one country to another.


In our region, there’s still this debate on whether we need a big state or a smaller state to provide goods and services.

Ayesha 23:44

Alia Moubayed, emerging markets economist:


Covid taught us that the role of the state is essential as a regulator, as an investor and as a protector in terms of being able to provide the social safety nets in times of serious shocks. And I think people now appreciate [this]. But what they want is, actually, a state that is more proactive, more agile, more transparent. Also, and I think this is an opportunity to continue on this sort of reinventing, more efficient, small but more effective government for citizens in the region.

Mustafa 24:38

The pandemic, just like the climate crisis, is a reminder that some problems require a global or regional response. With the exception of the GCC, there is no efficient regional framework to address common challenges. But the situation may well be about to change. The climate crisis, food and water supply, global trade disruptions, unemployment, as well as the digital transition, these are urgent challenges of regional proportions.


We need to be safe, all of us. And, therefore, regional co-operation is important, especially with the gap.

Ayesha 25:19

Jihad Azour, director of the Middle East and Central Asia department at the International Monetary Fund:


Countries that have exceeded 80% of vaccinations and countries who are still below 10. Therefore, you need co-ordination. And the good news is it’s opening the way to a new form of regional co-operation, something that is more tangible, more concrete on specific issues, something that can be a win-win. If you invest in broadening vaccination, you will reduce the risk everywhere. If you increase co-operation between universities and research, you will allow the region to play a role in the international recovery. If you address climate issues, you will improve the quality of life and you reduce the risks on everyone. Therefore, I think what we are going through today is definitely a new form of policymaking and also an opportunity for a different way of playing regional co-operation and be on the business side, on the social side. Or even on the political side. Addressing food security issues is something that would allow everyone to benefit. Addressing the issue of water utilisation, protecting the environment, our objectives that everybody can relate to.

Mustafa 26:57

The pandemic and the following fast economic rebound have accelerated many trends around the world. What about the Mena region? How did that play out? Long before the pandemic, many countries in the Mena region launched ambitious and transformative strategies aimed at diversifying their economies, creating jobs and reducing their reliance on oil revenues. This is particularly true of the UAE, Saudi Arabia, Oman and Bahrain, but also of other non-oil-exporting countries such as Egypt and Morocco. At the start of the pandemic, there were some concerns the crisis would offset the economic reforms and force governments to focus more on urgent matters. What happened was quite the opposite. Judging by investments in green projects, tourism, digital infrastructure, manufacturing, education and other sectors, it seems that the pandemic acted like a catalyst, at least for some countries in the Mena region, encouraging governments and companies to push ahead with reforms and transitions.


This crisis was also about accelerating trends.

Ayesha 28:22

Jihad Azour, director of the Middle East and Central Asia department at the International Monetary Fund:


Diversification was there before since 2014, 2015, were the new strategies, be it the 2030 Vision in Saudi or in different GCC countries. But this crisis has accelerated a certain number of trends. We knew that technology is going to revolutionise our life. But during the crisis, we saw that, for example, in countries like Morocco, phones allowed five million families to get support from the state. We saw, also, people in rural Egypt getting access to their remittances much efficiently and cost-effectively. Then before, therefore, technology accelerated a certain number of trends, policies. Also the way countries addressed the number of issues revealed where the weaknesses are, but also the capacity of the state to come very quickly and to respond. I hope that this has helped to increase trust between citizen and state at least on service delivery, but this crisis also accelerated certain number of global trends and value chains are changing patterns. And there is an opportunity for Egypt, Morocco, Algeria and others in the region to reposition themselves, and to be part of this new global architecture when it comes to trade. And this will, in itself, provide additional growth, potential jobs and hopefully jobs for the youth. And last but not least, when you listen to the youth in the region, you see that they look forward to the future. They believe that it is an important moment and they want to contribute. And I think this is where the region can address one of the main issues that it was not able to address in the last two decades, which is to reconcile the youth with recovery.

Mustafa 30:35

In its latest update in January 2022, the IMF projected global growth to moderate from 5.9% in 2021 to 4.4% in 2022. High inflation and the Omicron variant are slowing the global recovery. The biggest downgrade has been to the outlook for the US, where the IMF growth forecast has been shaved by 1.2 points to 4%. China’s growth forecast has been reduced by 0.8 points to 4.8%. How these numbers will affect the Mena region remains to be seen. The post-Covid recovery - PCR - is extremely uneven across countries in the Mena region. Some countries were already facing political tensions, economic upheaval and even security challenges before the pandemic. The crisis just added problems to an already problematic situation. This is true of Iraq, Iran, Lebanon, Libya, Syria, Yemen and Tunisia. On the other hand, we see other countries in the region that have managed to keep the pandemic under control. They’ve emerged from the crisis more resilient and engaged in economic, fiscal and social reforms. The post-Covid recovery offers a very contrasting snapshot of one region living worlds apart. Thank you. If you like this show, please check out the other episodes of the series. You can also subscribe on Apple Podcasts, Spotify or wherever you get your audio content.

Updated: March 08, 2023, 6:34 AM