Unrest to boost MENAP economies, says IMF

Structural reform will create long-term opportunities for Middle East and North African countries despite the recent unrest, according to the International Monetary Fund (IMF).

Countries in the Middle East, North Africa and Pakistan (MENAP) region face pressures from higher commodity prices and disruptions to economic activity in the near-term. However, over the longer-term the outlook is much more positive.

"In the long-run, the uprisings could give a boost to the economies in the region by setting a more inclusive growth agenda, improving governance and providing greater and more equal opportunity for its young and growing population," said Masood Ahmed, director of the IMF's Middle East and Central Asia department.

While the climate for investment in the region is set to improve, the economic environment will be much easier for oil-producing nations in the region compared with their oil-dependent counterparts.

"The near-term outlook is challenging, and there is a pressing need to address unemployment and improve social safety nets. The immediate challenge facing oil-importing countries in the Middle East is to maintain social cohesion and macroeconomic stability in the face of multiple pressures," Ahmed added.

Unrest in the region began at the end of January with a popular uprising in Egypt, and continues today with the unresolved conflict in Libya. The violence has pushed the price of oil higher as supply chains become threatened.

According to the IMF report, overall growth in the MENAP region for 2011 is projected at 3.9 per cent. However, GDP for oil producers is expected to expand to 4.9 per cent as they benefit from inflated oil prices. The uncertainty created by the unrest means that oil importers are only expected to grow by 2.3 per cent.

The IMF says that despite the windfall for oil producers, there are still a number of structural challenges to overcome.

"Notwithstanding this overall positive outlook, the region’s oil exporters continue to face challenging structural issues, such as the need for greater diversification of their economies, job creation for their populations, further financial development to support economic growth, and improvements in the management of public resources," says the report.

Ahmed says that pressures on macroeconomic stability must be addressed quickly as these are the biggest threats to growth.

"Additional spending in the near-term is understandable and necessary to ensure social cohesion, but will add to the strain on public finances. Many countries will need external support to help them manage the transition," he continued.

"However, in the medium-term, policies to alleviate social tensions cannot be perpetually financed through deficits and will require measures to raise revenues."

Richard Hancock, investment analyst at Investment Maze, says that the unrest has not put him off investing in the region.

"Personally I still think it is an alright area to invest in. It doesn’t take a genius to work out which areas are unstable – I wouldn’t invest in Libya for instance. Those areas that are secure will still offer opportunities."

The adviser prefers exposure to the region via a fund of funds rather than making a direct play on an Africa or Middle East fund.

"We feel that full-time managers have the expertise to decide how heavily to be invested and in what areas."