The US Government’s Debt-to-GDP Ratio Is Worse Than Greece’s Before the 2008 Crash

The US Government’s Debt-to-GDP Ratio Is Worse Than Greece’s Before the 2008 Crash

The USA’s Debt-to-GDP Ratio is rising. The managing editor of the Foundation for Economic Education (FEE), Jonathan Miltimore, quotes our managing director, Joshua Jahani.

Global Trade Analysis: MENA, UAE, and KSA 

Global Trade Analysis: MENA, UAE, and KSA

MENA Imports and Exports

This article focuses on imports and exports for the MENA region as they relate to other major economies, the role of the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) in the region, the region’s fuel dependency, the region’s growing focus on food independence, and finally the Gulf Cooperation Council’s (GCC) role for the MENA region and across the world.

The data and analysis contained within this article are taken from the World Bank, World Customs Organization nomenclature, sector classifications for the harmonized system, the International Monetary Fund, the United Nations, the Food and Agricultural Organization of the United Nations, and J&A’s own market intelligence.

The MENA Region Competes With China and the USA on Gross Import and Export Volume

  • The MENA region’s imports and export are approximately half the volume of the USA and China.
  • The MENA region imports approximately 50% as many goods as China.
  • The MENA region exports approximately 60% as many goods as the USA.

MENA Exports Are Steadily Expanding Across All Categories

  • Fuel represents approximately 50% of MENA’s exports, concentrated regionally in just a few countries. This will be discussed in part three of this series.
  • Fuel exports have been steadily increasing from the MENA region since 2015.
  • Only miscellaneous categories of exports have decreased since 2015, suggesting a focusing of MENA economies. Miscellaneous exports include items like watch pieces.

MENA Imports Raw Materials More Than Any Other Category, Suggesting a Focus on Regional Manufacturing

  • The steady decrease of MENA imports coupled with the steady increase of exports is good news for MENA countries seeking self-sufficient economies.
  • Raw materials are a large portion of MENA’s imports, suggesting a focus on refinement and manufacturing for the region.
  • 2018 showed the lowest total imports since 2015.

The chart below identifies the type of products associated with each import and export category based on World Bank nomenclature.

MENA’s trade position is unique when compared to China and the USA. MENA’s dominance is driven by the presence of oil, a natural resource. The USA and China’s imports and exports are not driven by a natural resource and are therefore more easy to replicate. If the MENA countries successfully diversify their economies, the region can become an increasingly powerful player by building on this natural resource foundation and then competing with other regions on services, technology, and other high-growth sectors. Due to current reforms in major MENA countries, the region is actively accomplishing this.

The MENA region is a gateway between the growing economies of Africa and Southeast Asia and more stabilized regions such as North America and Europe. This gives the region a strong value-added position when participating in trade between these other parts of the world.

UAE and KSA Imports and Exports

The Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) are the two most dominant countries in the MENA region. These countries possess advantageous economic, cultural, financial, trade, and religious positions. The countries also represent almost half of the imports and exports for the entire region.

The UAE and KSA Make up 50% of MENA’s Imports and Exports

  • The UAE and KSA are the most dominant players in MENA, accounting for over 50% of the region’s imports and exports.
  • Exports for the UAE, KSA, and MENA region have been steadily increasing while imports have been steadily decreasing, suggesting increasing independence of MENA economies.

The UAE and KSA Are Relatively Equal When It Comes to Import Diversity

  • The UAE and KSA import goods and services in relatively equal proportions.
  • The UAE imports more than KSA by approximately 60%.
  • Both the UAE and KSA import and export transportation, machinery, and raw materials more than any other category.

KSA Dominates the Region’s Fuel Exports; the UAE Leads in Transportation Exports

  • KSA is by far the region’s leader in fuel exports, which serve as a major differentiator for the country and economy; there has been no year since 2015 where the UAE exported more fuels than KSA.
  • Fuel is less than 50% of the UAE exports on average while fuel makes up nearly 80% of KSA’s exports in any given year.
  • KSA’s second most common export is raw materials, accounting for approximately 10% of the kingdom’s exports.

The UAE and KSA are the most dominant players in the MENA economy. They account for the majority of imports and exports as well as most of the region’s economic activity. The UAE has been removing barriers to trade that are not tariff-related, such as allowing expedited customs and the use of technology to create more efficient government organizations. KSA has recently started opening trade policies that reflect UAE standards.

Fuel Dependency in the MENA Region

Fuel has been, is, and will continue to be the MENA region’s most dominant export category. MENA countries export nearly 40% of the world’s fuel supply, and fuel makes up approximately 50% of the region’s exports. Global consumption of fuel has allowed the MENA region to grow in power over the last 50 years. However, these opportunities bring risks; fuel volatility can affect the region disproportionately to other more diversified economies. Therefore, the MENA countries are seeking immediate diversification.

Today, the MENA Region Is Dependent on Fuel Exports

  • Fuel is consistently just over 50% of the entire MENA region’s exports.
  • There are major government initiatives within all MENA countries to continue diversifying their economies away from fuel dependence.
  • In 2020, fuel remained the region’s top export.

KSA Is More Dependent on Fuel Exports Compared to Other MENA Countries, Including the UAE

  • Fuel is approximately 80% of KSA’s yearly exports.
  • Saudi Arabia’s 2030 vision is to reduce KSA’s dependence on oil, diversify its economy, and develop public service sectors such as health, education, infrastructure, recreation, and tourism.
  • Saudi Arabia’s economic evolution will also come with political considerations, as the kingdom continues to enhance its global positioning.

The UAE Is Least Dependent on Fuel as Its Major Export Compared to Other MENA Countries

  • Fuel is approximately 20% of the UAE’s yearly exports.
  • This is a result of the UAE’s ability to diversify its economy and increase its services, technology, and trading value.
  • The UAE’s investment in free zones and open economic policies have attracted businesses to the region. These free zones include Abu Dhabi Global Markets (ADGM), Dubai International Financial Centre (DIFC), Dubai Multi-Commodities Centre (DMCC), and many more with specific industry focuses.

KSA Is Expected to Follow the UAE’s Diversification Strategy Through Its Vision 2030

KSA’s Vision 2030 is a framework to reduce Saudi Arabia’s dependence on oil and diversify its economy. This will be accomplished through investments in health, education, infrastructure, recreation, and tourism. The Vision 2030’s goals include reinforcing economic and investment activities, increasing non-oil international trade, increasing government spending on the military, and promoting a more secular image of the kingdom.

The Crown Prince Mohammed bin Salman Al Saud announced Vision 2030 on April 25, 2016.

Food Independence in the MENA Region

So far this series has covered the MENA region’s global import and export position, the dynamics between KSA and the UAE, and the region’s general dependence on fuel that drives the need for diversification.

As part of their effort to diversify, MENA countries are seeking food and agriculture independence. The UAE and KSA are minor contributors to food and agriculture MENA export totals. Food and agriculture imports and exports make up a relatively small portion of total MENA numbers, but they are essential to the long-term stability of the region. The following data indicate the current state of food imports and exports in the MENA region, the UAE, and KSA, as well as key steps being taken to improve food production capability through technology.

The UAE and KSA Are Minor Players in MENA’s Total Food and Agriculture Exports and Imports

  • The UAE and KSA export less food and agriculture products than the average MENA country.
  • Food and agriculture account for approximately 4.5% and 3.5% of MENA’s imports and exports respectively; these percentages are expected to grow over the next five years.
  • UAE food and agriculture exports are growing; imports have remained stable.
  • KSA food and agriculture exports have remained stable; imports have slowly decreased.

KSA Imports More Agriculture and Food Products Than Other MENA Countries

  • KSA imports approximately 2% more food and agriculture products compared to other MENA countries.
  • The UAE imports 50% less food and agriculture than other MENA countries.
  • This stark contrast between the two countries highlights the UAE’s investments in food production capacity and technology.

The UAE and KSA Export Less Food and Agriculture Products Compared to Other MENA Countries as a Percentage of Total Exports

  • The UAE and KSA both export less food on average than other MENA countries as a percentage of total exports.
  • This is less significant than import disparities since food independence is a major driver but not necessarily food production and distribution.
  • KSA and the UAE are expected to continue producing less food and agriculture products than MENA countries in the near future.

The UAE’s Commitment to Food and Agriculture Leadership Is Evidenced in Its Tech Investments

As shown in the previous J&A series, tech investments are on the rise in the MENA region. The UAE has recently made 10 major food-tech investments as part of its continued commitment to food independence and leadership. These food-tech investments include smart farms, food delivery, curated menus, and more. The image above shows three examples of these investments from different categories.

In the final part of our series, we will investigate the Gulf Cooperation Council’s role in global trade for the MENA region as well as steps the council is taking to increase its cooperation and cumulative strength.

The Role of the GCC in Long-Term MENA Development

The Gulf Cooperation Council (GCC) includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The GCC was formally established on May 25, 1981. The council’s purpose is to unify the countries’ currency, trade markets, and other economic markets. There have been discussions to turn the council into a union with closer unity through a single currency and other economic integrations.

The GCC has made several changes to its policies that support its continued openness to trade. These policy changes include generating unified technical standards, harmonized customs administration procedures, and reduced clearance requirements to lower the amount of non-tariff barriers within the GCC. There are a number of special agencies in charge of creating and implementing technical standards, undertaking commercial arbitration, and registering patents: the Standardization and Metrology Organization for GCC in Saudi Arabia, the Technical Telecommunications Bureau in Bahrain, and the Regional Committee for Electrical Energy Systems in Qatar. These organizations have focused on making trade organizations more efficient.

The GCC Will Continue to Play a Crucial Role in International Trade

The following chart shows the trade openness of the GCC. This index is calculated by adding imports and exports in goods and services and dividing by the total GDP. The larger the ratio, the more the country is open to international trade.

  • All GCC countries are more open to trade than the world average.
  • The UAE has significantly increased its trade openness since 2006 and is currently the most open GCC country.
  • This openness to trade remains a significant strength of the region to attract new companies to offer products and services in and around the region.
  • Bahrain has maintained a historical and current openness to trade in excess of its GCC counterparts, this is likely due to the countries limited oil reserves.

The GCC’s Greatest Long-Term Sustainability Risk Is Lack of Diversification

  • GCC countries remain wealthy due to their dominance of the global fuel market.
  • As global economies move towards renewable energies, the GCC can expect a reduction in oil revenue.
  • Therefore, for GCC countries to continue growing, they must diversify into non-fuel areas such as technology and services.
  • Factoring the oil industry into the GCC’s GDP increases its real GDP by 50%.

The UAE Has Implemented a Successful Path to Diversification and KSA Is Set to Follow

  • As evidenced in this series, the UAE has diversified its economy and will continue to do so as a hub for global trade, technology, and services—particularly in the MENA region.
  • The UAE’s investment in free zones and open economic policies have attracted businesses. These free zones include Abu Dhabi Global Markets (ADGM), Dubai International Financial Centre (DIFC), Dubai Multi-Commodities Centre (DMCC), and many more with specific industry focuses.
  • KSA will be a rising force in the GCC. The kingdom’s Crown Prince, Mohammed bin Salman Al Saud, has made a commitment to the country’s Vision 2030, which includes significant steps to diversify the economy.
  • Saudi Arabia’s debt as a percentage of GDP remains very favorable, in 2019 the Kingdom’s debt was only 20% of the GDP, whereas countries like the USA and the UK have over 100% debt-to-GDP ratios.

The region represents approximately half the volume of imports and exports compared to the USA and China, but produces nearly 40% of the world’s fuel supply. The general volatility of fuel has pushed leaders to diversify the economy.

Food independence is a major objective of MENA leaders. The GCC’s trade openness as measured by the World Economic Forum has significantly increased over the last 10 years. J&A anticipates trade openness to continuously increase in the region, particularly with the anticipated expansion of the Kingdom of Saudi Arabia and its Vision 2030 program.

Sources: IAGS | The World Bank | IMF GCC Banking | IMF GCC Markets | IMF Trade and Foreign Investment | Saudi Arabia Vision 2030 | UAE Ministry of Finance

Joshua Jahani on S&P Reaching 4,000

Joshua Jahani on S&P Reaching 4,000

In this episode of BBC Newsday Joshua Jahani talks about the S&P 500 reaching 4,000 (11:30).

Also in this episode:

Taiwan’s rail company says 36 people are known to have died, and dozens injured. Myanmar’s deposed leader Aung San Suu Kyi had already been accused of breaking COVID-19 rules and illegally possessing walkie-talkies—now she’s been charged with violating the country’s official secrets act. And the story of the Italian businessman who tried to fake his own kidnapping for financial gain, but ended up as a prisoner of a jihadist group for three years.

If Biden Wants to Improve Relations With China, He Should Look to the Middle East

If Biden Wants to Improve Relations With China, He Should Look to the Middle East

President Biden’s first moves in the Middle East—bombing Iran-backed militias in Syria, for instance, while deprioritizing much of the rest of the region—neglect the bigger picture of a region that is leading the world out of the pandemic. And with the first US-China meeting under the Biden administration getting off to a tough start this week, that’s more important than you might think.

The Gulf states and Israel provide an opportunity for the US to participate in a global economy that will be more centered on the Middle East than it was before the virus. This future must be a cornerstone of US policy, as well as the legacy issues around security.

The COVID-19 pandemic has threatened the mature economies of the US and Europe, accelerated China’s inevitable rise, and given opportunities to the region’s often more agile and adaptable countries.

There are few countries in the world that have (almost) put the pandemic behind them and are on good terms with both the US and China. Those are the countries that are set to lead the world in the 21st century. They are almost exclusively in the Middle East.

The rise of the Middle East as a gateway between the US and China presents an opportunity for Biden to re-engage with Beijing through the neutral soil of Israel and the Gulf states. Biden should not be afraid of celebrating and building on the diplomatic progress achieved under the Trump administration through the end of the GCC rift and the Abraham Accords.

Being the “new Europe” is something that Middle Eastern leaders are understandably motivated by, particularly in light of their relations with both DC and Beijing. Europe was the middle ground for the Soviet-US Cold War, and the Middle East is the same for the China-US relationship—geographically, politically, and economically.

Rather than continue to fight yesterday’s conflicts and ignore today’s achievements (perhaps focused on distancing himself from Trump’s policies), Biden should craft policy based on the reality that the Middle East is transitioning from a 20th century defined by conflict and insecurity to a 21st century where the Silk Road is once again the social, economic, cultural, and political center of the world.

This is a future into which the Middle East is rapidly progressing. Three of the top five countries with the most COVID-19 vaccinations (excluding the Seychelles and the Maldives) are in the Middle East—namely the UAE, Israel, and Bahrain. In addition to a successful vaccination campaign, total death rates in these countries and others in the region have remained low. All this while key industries, including tourism, have often remained open.

Saudi Arabia has been working to almost triple its non-oil revenues, and is investing billions into futuristic cities like NEOM and “The Line.” The UAE successfully completed a mission to Mars during the pandemic and recently announced plans to double Dubai’s population, all while commentators in London and New York discuss the “death of cities.”

Gulf economies also benefit from a low debt-to-GDP ratio, which will allow them to maintain growth while more developed and leveraged economies struggle in the wake of the pandemic. The US currently has a debt-to-GDP ratio of over 100%; in Saudi Arabia and the UAE, the debt-to-GDP ratio is only 20%, meaning those governments will have spending power well into the future for public and private projects.

China is busy building deeper links in the region, where doing business is more important than talking politics. It is important to Biden’s legacy that US policymakers and investors do the same, and foster both cultural and economic connections to the new Middle East rather than allowing themselves to be crowded out.

To this day, too many American political and business leaders are driven by the impulses that impacted actions between them and the Middle East at the start of the millennium. Twenty years on, the White House should look to the future. It must adapt to the rise of China by utilizing the Middle East’s neutral ground to increase cooperation with Beijing.

It’s high time an American president looked to the Middle East for its entrepreneurship, adaptability, and its e-governance, rather than simply for its oil.

Joshua Jahani is a Cornell alum, public speaker, and an investment banker with a focus on the Middle East and Africa.

MENA Investment Series: Strategies for Bringing Innovation to MENA (3 of 3)

MENA Investment Series: Strategies for Bringing Innovation to MENA

Part 3 of 3

In the last installment of the Middle East Investment Series, we detailed the recent venture funding in the region by industry and country. Now that the landscape has been outlined, we will walk through how to use a joint venture (JV) strategy for bringing innovation to the MENA region.

We hope this series has been valuable to you. Our next series will be a deep dive into technology and venture investing in the MENA region. We will focus on dynamics between all MENA countries, including major investment firms, portfolio companies, amount invested, and how it relates to each country’s global strategy for maintaining a competitive advantage.

MENA Investment Series: VC Funding by Industry and Vertical (2 of 3)

MENA Investment Series: VC Funding by Industry and Vertical

Part 2 of 3

Last month we highlighted the growth in the Middle East and North Africa (MENA) investment space. In this newsletter, we will dive into funding by industry and region.

In next month’s newsletter, we will walk through the steps to create a successfully closed deal in the region based on success stories and lessons learned. This information will be a guide to expansion in the region supported by capital placement.

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