LONDON: Fitch Ratings says in its latest global Sovereign Review and Outlook report that although growth in the Middle East and Africa (MEA) region will slow in 2012 to 4 percent from almost 5 percent this year, tracking the forecast global slowdown, the broader impact on the regions? countries will be limited.
Of the 26 countries in the region, all are on Stable Outlook except for the three Negative Outlooks on Egypt (BB), Tunisia (BBB-) and Lesotho (BB-).
The reason for MEA?s relative resilience is partly the limited expected impact on commodity prices, especially oil, which Fitch sees averaging $100/bl in 2012 compared to $110 in 2011. The oil market remains tight and rising political risk centered on Syria and Iran is another factor keeping prices high, notwithstanding likely slower demand growth. Global financial linkages remain limited for most countries in the region, with noticeable exceptions such as South Africa. Unlike in 2009, however, Fitch expects only a mild slowdown in South African growth to just under 3 percent.
The major Gulf oil exporters ship most of their oil to Asia. Meanwhile, China?s growing trade and financial links with Africa and its importance for global commodity prices, means a slowdown in China and Asia more generally would be of potentially greater significance for Africa than the impending slowdown in Europe (see Fitch?s Sub-Saharan Africa: Facing its Challenges, Dec. 12, 2011).
The expected slowdown in the major oil exporters in 2012 is mainly because this year?s increase in oil production post the Libya conflict will not be repeated. Nonoil growth will be sustained by strong oil revenues and government balance sheets that allow Saudi Arabia and Kuwait to maintain strong infrastructure programs. Abu Dhabi has put more emphasis on fiscal consolidation this year, however, and will probably see a sharper slowdown in 2012 than the other two major oil exporters. But as a result, its breakeven oil price will fall while those of Kuwait and Saudi Arabia will continue rising. All three sovereigns enjoy enormous fiscal flexibility in the event of lower than expected oil prices.
Trade links with Europe are greatest for North Africa, and this will add to the political challenges Tunisia, Morocco and Egypt already face, as markets for exports, tourism and sources of FDI and other capital inflows become more constrained. Egypt and Tunisia should nevertheless manage a modest pick up in 2012 but Morocco, which has not seen the political disruption of its neighbors, will slow, reflecting its proximity to Europe.
Egypt?s political transition is proving to be turbulent. Nevertheless, two rounds of elections have been successfully held, with a high turnout. Islamist parties have won the biggest share of the vote in each of Tunisia, Morocco and Egypt. And in all three, coalitions have been or are likely to be formed with secular parties. In no case has there been any suggestion of radical departures from macro economic orthodoxy. Nevertheless, meeting newly empowered electorates? increased expectations for jobs and growth will present formidable policy challenges to new governments in 2012.
The main concern in Egypt is the weakness of a succession of transitional governments, which has hampered decision making and contributed to delays in agreeing external assistance. Little of the substantial sums offered earlier this year have actually materialized. This has increased the burden on domestic financing, with bond yields up sharply and international reserves continuing to fall, eroding what was an important rating strength.
The recently appointed government will need to present a coherent policy framework and boost confidence soon if international reserves are not to fall to critical levels.
Fitch sees Sub-Saharan Africa growth sustained at 5 percent to 5.5 percent in 2012. The region?s two biggest economies, South Africa and Nigeria, will slow, but Nigeria is expected to remain one of the few economies globally with growth above 7 percent in 2012. Others in the region are Angola, Ghana, Mozambique and Rwanda. Nigeria?s monetary framework has been strengthened this year.
However, tightening fiscal policy remains a key challenge. A plan to save excess oil revenues in a new sovereign wealth fund is subject to political challenge and plans to remove petroleum subsidies are proving controversial. Prospects for Nigeria in 2012 will depend on the course of oil prices first and foremost, but also on the government?s success in implementing its structural reform agenda. Kenya and Uganda have had the challenge of very rapid inflation this year due to high fuel and food prices and also weakening currencies. Interest rates have had to rise sharply. This should help return inflation to single digits in 2012, with only Nigeria and Angola expected to retain double digit inflation.
Source: http://arabnews.com/economy/article551687.ece
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