Part 3 of the ECM First Quarter Middle East/ Africa Economic Round Up

May 18, 2012 - PRLog -- In the first 2 parts of our report we covered South Africa, Israel and Egypt three of the more prominent economies in this area, today we look at three less known economies, Morocco and Jordan, and how they have fared in the beginning of 2012.

Morocco: Finance ministry lower 2012 growth estimates

To aid a sluggish economy, Morocco’s central bank, for the first time in three years, cut its key interest rate, trimming it down by 25 basis points to 3.00% in March. The central bank governor  noted that a steep drop in agricultural produce and the impact of the Euro-zone debt crisis has dented economic activity. In addition, soaring energy costs and rising wheat imports resulted in a 27.6% surge in the country’s trade deficit in February, as noted by a central bank report. The North African country’s trade deficit stood at $4.5 billion versus $3.1 billion in the comparable period a year ago. According to the central bank, a worsening of the trade balance has been mainly due to a 16% rise in imports, which dwarfed a 4.6% increase in exports.

A widening current account deficit, in part due to a surge in trade deficits, remains a concern.

According to government ministers, Morocco might dip its toes into the international bond market in 2012, considering its wide current account deficit had increased to 6.5% of the GDP in 2011 versus 4.3% in 2010. What’s more, the debt/GDP ratio increased to 52.9% in 2011 from 50.3% in 2010. Yet, according to the finance minister, the current account deficit could be financed either internally or with the help of the European Union, the World Bank and the African Development Bank.

A Reuters report also noted concerns about the wide trade deficit denting the nation’s foreign currency reserves, given that Morocco’s currency is not fully convertible. Foreign currency reserves, which stood at around $20 billion by 2011-end and the lowest since 2001, are capable of covering just over five months of imports requirement.

Meanwhile, unfavorable weather conditions have taken a toll on the nation’s key agricultural sector.

According to the central bank governor, the cereal harvest in 2012 is expected to be only 3.8 million tons, a 55% drop from the 2011 level. This could lead to a surge in cereal imports, and in turn widen the country’s balance of payments. Agriculture accounts for 14% of the country’s output and employs 40% of Morocco’s workforce of 11 million, as noted by a Reuters report. Encouragingly though, exports of phosphate products jumped 29% to $250.9 million, as noted by a central bank report.

Trade, tourism receipts, migrant remittances and foreign investments are vital cogs of the Moroccan economy, which relies heavily on the Euro-zone to keep the nation’s economic engine humming. Trade figures have started to mirror the impact of slowing growth in Europe, which accounts for around 60% of Morocco’s export revenues, as noted by a Reuters report. According to the report, European Union (EU) imports of Moroccan goods grew 7.8% in 2011, slowing from 19.8% growth in 2010. In other news, the tourism department has expressed concerns over slowing tourist numbers in Marrakech particularly from Italy, Spain and France, that could spell a difficult year ahead. While Europe provides over 80% of tourist footfalls, France alone accounts for around 50% of foreign tourism, as noted by a Moroccan financial daily.

Increased government spending has thus far has cushioned Morocco’s economy from the repercussions of the Arab Spring turmoil and European sovereign debt crisis. Yet, migrant remittances are extremely vital to the economy as indefinite government spending is not sustainable. According to a Reuters report, remittances to the tune of $7 billion in 2011 brought in more hard currency than that of phosphate exports, which is the top export revenue generator.

The report noted that, given the European economic slowdown, migrants based in France, Spain and Italy, in particular are the most vulnerable. Migrant remittances for the period January 2012- February 2012 stood at $1.06 billion versus $988.2 million a year ago.

Jordan: Energy crisis continues to choke the economy

According to Jordan’s central bank report, tourism revenues, a critical component of the economy, showed a slight uptick in growth in the initial two months of 2012, despite a drop in visitors’ footfall. The report noted a small rise of 0.2% in revenues to $467.8 million, while the total number of visitors fell 6% to 919,859 from 980,359 in the comparable period a year ago. Among the major tourist sites, the Baptism Site witnessed a 38% slump in visitors followed by Petra at 26.8%.

According to the tourism ministry, the Arab Spring uprisings in 2011 cost the sector $1 billion.

Still, widening trade deficits remain a concern. The turn of the New Year saw Jordan’s trade deficit skyrocket 63% in January from a year ago, mainly due to ballooning imports. According to the Department of Statistics (DoS), imports escalated 32.9% to $1.91 billion as opposed to a 4.5% decline in exports to $618.29 million. The Kingdom’s key trading partners include member countries of the North American Free Trade Agreement (NAFTA) and Greater Arab Free Trade Agreement (GAFTA), as well as non-Arab Asian countries including China and European nations including Bulgaria.

Alongside, the energy crisis in Jordan showed no signs of abating, as the Kingdom heralded 2012 with a historically high $3.85 billion energy bill, as noted by official data. According to the DoS, imports of crude oil, oil derivatives and electricity surged 97% to $718.62 million in January. In addition to rising demand and the cost of fuel, Jordan is also facing a drop in the pipeline supply of natural gas from Egypt. Political upheaval in Egypt has resulted in frequent sabotage of the gas pipelines. According to Jordan’s Electricity Regulatory Commission (ERC), fuel shortages cost the country around $1.42 billion in 2011.

According to the finance minister, Jordan’s budget for the year 2012 has been estimated at $9.6 billion with a budget deficit of $1.5 billion. An increase in debt over the past three years has mainly been due to accelerating electricity, gas and other energy prices on the global market. What’s more, the government also announced a hike in the electricity tariff in the coming months to recover the losses incurred in 2011 due to sabotage on the gas pipelines.

To alleviate Jordan’s energy woes, the economic policy forum has suggested several solutions including diversification of the Kingdom’s imported fuel resources. Other recommendations include developing electricity generation plants using renewable energy, building wind and solar plants,  and establishing storage stations to stockpile reserves to last over four to six months. Among other things, experts of the economic policy forum are keen on policies surrounding energy consumption, the removal of taxes and custom duties on energy-efficient devices, and the wider use of solar  heaters.

Following a difficult 2011, economic and political reforms lined up for the year are expected to improve Jordan’s growth prospects in 2012. Still, Standard & Poor’s (S&P) expects the Hashemite Kingdom’s current account deficit to widen to 7.3% of GDP by 2012 end, albeit with a positive long term outlook. The International Monetary Fund (IMF) has pegged Jordan’s GDP growth at 2.9% for 2012.

The Middle East and Africa Economies are a vital barometer to what is happening in the region. With the Arab Spring risings a distant memory for some countries and a current affair for others, this region will continue to grow and offer ore opportunities to its neighbors.