Country Risk in MENA

Egypt (EGY)

Egypt’s overall risk level remains high. Political violence remains very high, with political interference and legal & regulatory risk at high. The cost of living crisis is causing discontent that could threaten protests against high inflation and unemployment and the government continues to remain wary about civil unrest.  Additionally, the war in Gaza is hurting the economy via lower tourism and less ships through the Suez Canal.  Geopolitically, the war in southern Gaza risks a refugee crisis, which Egypt wants to avoid for many reasons.  Egypt is reluctant to scrap the Camp David deal with Israel, but could increase pressure further on Israel in the coming months to end the war in Gaza.  Meanwhile, the extra USD 5 bln agreed with the IMF has been followed by the needed devaluation of the Egyptian pound, plus promises of fiscal tightening and structural reforms. The Egyptian Pound has stabilised after the 62% March devaluation, while the central bank has hiked rates interest rates to 27.5%. Much depends on getting inflation down to single digits eventually, but this will not be achieved in 2024 and 2025, with the IMF now forecasting 32.5% and 25.7% for the two years, respectively. The currency problems are now secondary, as the World Bank has also committed USD 6 bln, European Union USD 8 bln, while Saudi Arabia is expected to buy real estate though perhaps not on the huge scale of UAE’s USD 35bln mega investment on the Mediterranean coast.  President Sisi’s bias towards mega projects and need for support from the army also suggests that multi fiscal consolidation will likely disappoint.  However, the external funding not only helps the currency, but also allows smooth sovereign debt payments. Sovereign non-payment is at high. The government Debt/GDP ratio is forecasted to drop to 82.6% in 2025 and is then projected to come under better control. The risk of doing business and the inability of government to provide fiscal stimulus remain at medium high.

Iran (IRN)

Iran has a very high overall risk level.  The risk of political violence is high, while political interference remains very high.  The government continues to try to control domestic public unrest about the cost of living/inflation crisis, restriction of freedom and economic mismanagement.  Economic protests were seen in May and the risk of further protest exists. Meanwhile, Iran’s April attack on Israel, plus the limited but significant counterattack by Israel on Iran has been followed by calm.  However, both sides have raised the stakes in terms of potential military actions in any future crisis and this could mean a broader risk hangs over Iran.  This is not only a military risk for Iran but also the risk of domestic unrest against the regime.  The risk has been lowered, however, after the death of President Raisi in a helicopter accident and the approach of new presidential election on June 28. Iran will likely be inwardly focused for the remainder of 2024. The outcome of the U.S. presidential election could also complicate regional security, if Donald Trump were elected president and given his strong anti-Iran stance. On the economic front, Iranian economy struggles due to sanctions and geopolitical tensions. Annual inflation surged to 52% in 2023 and is projected by the IMF to remain high at 37.5% in 2024 and 32.5% in 2025. Until inflation comes down, it will restrain growth to 3% and also remain a cause of political instability.  With high political inference to control reoccurring protests, legal and regulatory risk remain very high and the risk of doing business is also at very high. Elsewhere on the regional front, Saudi Arabia and Iran continue to hold cooperation talks, despite Saudi intelligence help for the U.S. over Iran’s attack on Israel.  Both sides do not want a regional escalation of the war in Gaza and also want a de-escalation of tensions between Iran and Saudi Arabia.

Kuwait (KWT)

Kuwait’s overall risk rating remains at medium.  Kuwait’s push to encourage structural diversification like other GCC remains frozen by the domestic political crisis.  After the April elections, Emir Mishal decided to dissolve the parliament and suspend parts of the constitution for up to four years. This is a worsening of the power struggle between the ruling Al Sabah family and parts of the judicial and legislative branches due to long-running disagreements over debts, stateless people and redrawing of electoral boundaries. This is an unfriendly business environment and helps to explain the risk of doing business at medium and political interference also at a medium rating.  The political violence measure also remains at medium, though with no current signs suggesting that the ongoing power struggle could escalate into a more volatile or violent situation.  The support for the overall risk rating comes from oil exports helping government revenues and a current account surplus around 30% of GDP for 2024. This windfall from the rebound in oil prices since the 2020 lows means that sovereign non-payment risk is at medium-low, while banking sector vulnerabilities are also at medium-low. 

Morocco (MAR)

Morocco’s overall risk level remains medium. Aziz Akhanouch remains the prime minister of the country since 2021. Political violence and legal & regulatory risk remain medium high, with political interference at a medium. The most important issue remains tensions with Algeria across political and media channels.  Military analysts fear in the worst case this could led to a military clash. Elsewhere, France has decided to fund projects in the Sahrawi region, through the French Development Agency (AFD). Western Sahara’s Information Ministry stated that this plan represents support towards the contested occupation of parts of Western Sahara by Morocco. This project is a 3 gigawatt power cable will link Morocco’s Casablanca to Western Sahara’s Dakhla. Morocco is expecting France to recognise its full sovereignty over Western Sahara, like the US and many Arab and African countries already have. Supply chain disruption remains medium. Growth is expected to slightly increase in 2024 by 0.1% to 3.1% and reach 3.3% by 2025, according to the IMF. CPI is forecast to drop to 2.2% in 2024, depicting a 3.9% decrease from 2023, but rebound in 2025 to 2.5%. Morocco will allocate 1 million hectares to green hydrogen projects, which according to the prime minister will help Morocco play a major role in energy transmission globally and help the economy. The Central Bank chief, Abdellatif Jouahri has pledged to raise green investments to 10% of reserves. However, the continuous drought in Morocco has led to an increase in unemployment to 13%, as more than 200,000 that were working in the agricultural sector are now unemployed. Morocco’s current account deficit is projected to increase to -2.6% of GDP in 2024 and further increase to -2.9% in 2025. Sovereign non-payment remains medium high and exchange transfer remains medium. The Moroccan dirham is pegged to a currency basket, with 60% weighted to the euro and 40% to the USD. The risk of doing business remains medium low, while banking sector vulnerability and the inability of government to provide fiscal stimulus remain medium.

Saudi Arabia (SAU)

The overall risk rating remains at medium. The risk of political violence remains at medium-high and political interference risk at medium. Despite the adverse impacts of the war between Israel and Hamas, Saudi Arabia has managed to avoid any deterioration in relations with Iran, even after providing intelligence to the U.S. and Israel over Iran’s April attack on Israel. Yemen ceasefire discussions have also been ongoing, which has stopped Houthi concerns over Israel’s western allies becoming an issue with Saudi Arabia. Saudi Arabia has also not been at the forefront of countries pushing for a ceasefire and a two states solution. Though the U.S. secretary of state has talked up prospects of a defense pact between the U.S. and Saudi Arabia, this comes at the cost of normalizing Saudi-Israel relations and that is politically difficult for Saudi Arabia until a Gaza peace deal is agreed with Israel by the UN and other countries. Instead, the focus remains on Vision 2030, which is currently attracting greatest international attention as the investment phase is ramped up.  On the economic front, the economy continues to remain dependent on revenues from fossil fuels to pay for the accelerated investment built out in the non-oil sector.  The current account surplus is set to be a mere 0.5% of GDP, as the non-oil sector sucks in imports. This accelerated construction activity is one of the reasons behind IMF forecast of 6.0% GDP growth in 2025 versus 2.6% in 2024. The structural financial and economic strength keeps the sovereign non-payment risk at medium.

West Bank/Gaza (PSE)

Qatar and Egypt push for a ceasefire ran out of steam in May and heralds more Israeli military incursions around Rafah in Gaza. Despite international pressure, the U.S. Biden administration are reluctant to swing against Israel too far, given the approach of the November U.S. presidential election. This could mean that the war drags on for many months based on Israel objectives. Meanwhile, despite growing international support for a two-state solution, Israel post war plan remains in place. Israel’s plan is for a demilitarized zone with continued Israeli military presence indefinitely and non-hostile Palestinians to run Gaza. Even if Israel PM Netanyahu is replaced, the broad thrust of this plan will likely remain from Israel’s standpoint.  Israel wants control of Gaza, but also want to deflect growing international pressures for a two-state solution that encompasses Gaza and the West Bank. The West Bank also continues to see violence between Israel settlers and Palestinians, which is causing an unstable security and economic environment in the West Bank. The U.S. has also increased sanctions against a limited number of violent Israeli settlers, which is hurting business sentiment on fears it will stop bank funding to the West Bank. All of this means that the Q4 2023 overall country risk rating at high could worsen in the coming quarters, given the surge in political violence; collapse of Gaza economy; political flux in Gaza and West Bank; uncertainty of the post war political environment and reconstruction and difficulty of managing the West bank economy and finances.     

Yemen (YEM)

Yemen’s overall risk level remains very high. Rashad al-Alimi remains chairman of the presidential leadership council, with Ahmad Awad bin Mubarak as prime minister since February 2024. The prime minister is also serving as the foreign minister of Yemen. Political violence, political interference and legal & regulatory risk remain very high.  Progress on a lasting peace deal to end the civil war remains slow, due to the war in Gaza and Houthi attacks. Houthi Iran-aligned militias continue to attack shipping vessels that pass through the Red Sea to show their solidarity to Palestinians. Houthi’s military targets ships with ties to Israel, the US or the UK. Following these attacks, the US along with the UK fired 17 airstrikes in small towns and ports in Yemen that killed at least 11 people in order to protect shipping vessels. The US military stated in April that it had eliminated air defence and drone systems in the Red Sea Area of Yemen’s Houthis without any casualties. However, the Houthis again attacked a shipping vessel, claiming that it was British that was registered to an individual from the Seychelles and was participating in Russia-linked trade. Houthis are now offering university education to any student suspended from their university in the US, due to the protests. Supply chain disruption remains very high. Growth is expected to remain negative in 2024 equal to -1%, but become positive in 2025 reaching 1.5%, according to the IMF. CPI is forecast to turn positive in 2024 and increase to 16.9%, after experiencing disinflation in 2023 and continue to increase in 2025 to 17.3%. Yemen’s current account deficit is projected to decline to a still awful -23.7% of GDP in 2024 with a government debt/GDP ratio of 81.4%. Sovereign non-payment has increased from high to very high and exchange remains high. Yemen’s currency, the rial (YER) is pegged to the USD at a rate of 1 USD per 0.0040 YER. The risk of doing business is very high, due to factors, such as corruption, damaged infrastructure, high inflation as well as the participation of Yemen in the ongoing civil war. The inability of government to provide fiscal stimulus has increased from medium high to high.