MENA Q2 results: Politics still the key risk determinant in a region fragmented by conflict
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MENA Q2 results: Politics still the key risk determinant in a region fragmented by conflict

Country risk continued to increase across the Middle East and North African region during the first half of this year, according to experts taking part in Euromoney’s Country Risk Survey, although the changes in risk scores varied as some countries became safer.

Moreover, although the more unstable parts of the region – Egypt, Libya and Syria among them – have naturally contributed to the deteriorating regional average score, Qatar and Israel also saw their risks attenuate, albeit without threatening their comparative safety.

The Middle East and North Africa (MENA) region has continued to exhibit diverse risk trends so far this year, largely due to the impact of conflict and instability on its political, economic and structural development.

During the first six months of 2013, the 18 MENA countries saw an average score loss of 0.3 of a single point, continuing a longer-term downward trend evinced since the global crisis and heightened by the Arab Spring uprisings.

Although this latest score drop is less severe than those witnessed for Central and Eastern Europe (CEE) – down 0.7 since December – the Brics (0.6) or the eurozone (0.5), it highlights the perceived riskiness of many emerging markets (EMs) in the region that still constrain the otherwise safer investment prospects to be found elsewhere in the region.

MENA’s average score of 46.74 in June is now less than a point higher than Latin America’s, an indication of the latter rapidly catching up in comparison, with a score differential some 10 points three years ago.

Improving scores in eight MENA sovereigns since December have been outweighed by 10 score declines, while Latin America (Brazil aside) has been less affected by social instabilities, with Mexico leading a clutch of improving sovereigns offering safer risk metrics.

The declining MENA trend can be explained largely by the internecine strife and its impact in Egypt (Egypt’s enormous funding requirements – time-bomb waiting to explode), Syria, Libya and Yemen, among others, causing domestic economic decline and fiscal upsets.

Yet there are other causes too, according to the evaluations of Euromoney’s experts, including economic slowdowns – in China and elsewhere – affecting demand for oil, gas, textiles and manufactured-goods exports, and banking-sector issues putting pressure on sovereign budgets, liquidity and capital access.

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