MENA Q3 results: Region slides due to political and economic instability

Jeremy Weltman
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Qatar remains the safest MENA country while the region’s average risk score in Euromoney’s Country Risk Survey slips again during the third quarter, as economists downgrade their views on most countries polled.

Suffering still from the after-effects of the Arab Spring, the Middle East and North Africa (MENA) region saw lower scores for 15 of its 18 constituent countries during Q3 2013, in many cases continuing longer-term adverse trends. Morocco, Tunisia, Yemen, Kuwait, Algeria and Syria suffered the largest score declines.

The strife in Syria, and to a lesser extent Egypt, still reverberates around a region where populations still clamour for democratic freedoms, and is imparting increased risk on neighbouring states such as Lebanon. However, various countries from Iran and Iraq to Kuwait and parts of northern Africa are also suffering from domestic political problems affecting their risk profiles.

Many avoided the social instabilities and government upheavals witnessed in Cairo and Damascus, but ECR experts remain concerned by pockets of civil unrest, terrorism stemming from Islamist restiveness and weak fiscal positions linked to energy sector and other economic and politically-motivated weaknesses, including government subsidies necessary to counter revolt.


Many MENA countries held their ground in ECR’s global rankings relative to other emerging markets suffering from greater risk aversion – not only the Gulf states, backed by their solid hydrocarbon wealth, but others, too, including Jordan.

Overall, the region is still offering comparative safety relative to Latin America or Asia (see chart). The average MENA score slipped to 46.3 in Q3 2013, a drop of 0.4 on the quarter and 0.7 for the year so far, but it is still out in front.


While the instabilities in Syria, Libya and Yemen still weigh heavily on their respective risk profiles, the wider picture for the region remains a disparate one.

Indeed, with Qatar, ranking 18th out of the 186 countries in ECR’s survey, enjoying a modest rebound in its score since June, and lowly Syria, the riskiest MENA sovereign placed 160th, seeing its score drop to 21.8, the regional score dispersion has increased to 51.2 – its widest margin all year.

High-risk Egypt sees marginal improvement

Egypt’s declining score trend partially reversed at the end of the third quarter of 2013, but the country remains one of the riskiest in the MENA region, both in terms of its political and economic rating.

Having reached rock-bottom during the second quarter, Egypt’s ECR score rebounded slightly during Q3 2013, pushing this high-risk sovereign up four places in the global ECR rankings to 132nd.

While evidently still one of the riskiest regional investments, ECR recently reported that Egypt has seen a marginal improvement in the third quarter, with 11 of its 15 risk indicators marked up slightly, albeit from very depressed levels, to push the sovereign four places higher in the rankings to 132nd globally. This, after the sharp slide in recent years correlated with its political turmoil and economic after-effects.

Some modest improvements are expected by ECR experts in the wake of the overthrow of president Mohammed Morsi, not least better economic growth and an ameliorating balance-of-payments situation, even if cautious optimism prevails given the instabilities witnessed lately and the difficulties in restoring confidence among tourists and foreign investors.

CI Capital economists Mona Mansour and Alia Mamdouh, working alongside ECR expert Mohamed Elsherbiny, head of funds strategy and asset allocation at the Cairo-based investment bank, note several substantial downside risks for Egypt. They include the security situation, the inability to ensure political consensus and weak government execution of investment projects, not to mention energy subsidy reform, currency devaluation and the constitutional referendum bottleneck.

However, they also state: “The early shift to an expansionary policy with two consecutive 50-basis-point reductions to the interest rate confirms the government’s focus on spurring growth through supporting investments,” while noting Gulf Cooperation Council (GCC) aid has allowed the sovereign to settle overdue payments – factors behind the sovereign’s stabilizing risk profile.

By contrast, all other North African states saw lower scores this quarter – amounting to more than one point each – continuing longer-term declines witnessed in the wake of the Arab Spring uprising that first erupted in Tunisia almost three years ago.

Morocco, a reasonably high tier-four sovereign, with a fall of 1.6 points to 45.6 out of 100 has slipped three places in the rankings to 74th, belying the prior expectation among ECR economists and other country-risk experts of improving prospects – though, importantly, it should be noted that its longer-term trend is more stable than other North African states (see chart).


Tunisia has shed 1.5 points to 42.3 and remains rooted in 79th spot – a mid-range tier-four sovereign. Algeria, a 1.1 point faller to 37.5, and also in tier four, is two places lower in 96th, while tier-five Libya, still languishing at 148th one place below Yemen, has seen its score slip to 26.7.