Exogenous factors, such as geo-economic division, climate change and technological threats all pose a particular risk to MENA, but so, too, do hazards that are more regional in nature. According to respondents in the Middle East and North Africa to the World Economic Forum’s Executive Opinion Survey, the top two risks across the region for doing business are “energy price shock” and “unemployment or underemployment.” These risks are largely economic in nature and affected by the health of governance in the region. Similarly, the number five risk, (“fiscal crises”), the number seven risk (“unmanageable inflation”) and the number 10 risk (“failure of financial mechanism or institution”) follow the same pattern of being largely economic in nature and potentially governance-driven.
The top risk, “energy price shock”, comes at a time when some countries have taken steps towards diversification, but the region is still largely a hydrocarbon economy, heavily reliant on revenue from this sector. Oil prices increased substantially between 2017 and 2018, from around USD 50 to USD 75. This represents a significant fillip for the fiscal position of the region’s oil producers, with the IMF estimating that each USD 10 increase in oil prices should feed through to an improvement on the fiscal balance of three percentage points of GDP. However, vulnerabilities to swings in oil prices have not disappeared and are particularly pronounced in countries where government spending is rising. This group includes Saudi Arabia, which the IMF estimated in May 2018 had seen its fiscal breakeven price for oil — that is, the price required to balance the national budget — rise to USD 88, 26 percent above the IMF’s October 2017 estimate and also higher than the country’s medium-term oil price target of USD 70 – USD 80.
It is no surprise, then, that Saudi Arabia remains one of five countries in the region that rank “energy price shock” as the top risk to doing business in the survey, along with Bahrain, Kuwait, Oman and Qatar.
The World Economic Forum in partnership with Marsh & McLennan Companies and Zurich Insurance Group released its Middle East and North Africa Risks Landscape Report, which uses data from the Global Risks Report 2019 and the Regional Risks for Doing Business 2018.