ECONOMIC OUTLOOK
A turbulent region
international
construction
december 2013
18
A turbulent region
The outlook for construction in many North African countries is tied, now more than ever, to political
developments.
Scott Hazelton
reports.
E
conomic recovery for North Africa is
proceeding slowly as the region continues
to search for stability and recovery from
the Arab Spring revolutions. Egypt and Tunisia
have struggled through their respective political
transitions, weighing down their recoveries and
growth prospects for at least the near future.
Libya has benefited economically with its fast
rebound in oil production, but is tackling issues
of establishing a new political framework while
rebuilding state infrastructure and institutions, all
amid precarious security conditions.
Even economies which managed to escape revolt
with self-prescribed political reforms – such as
Morocco – face ongoing political tensions and
turbulence that have stunted the rebound for
crucial activities such as tourism and investment.
Taken together, this spells another trying year
for North African economies, before factoring
in the weak Eurozone, fiscal challenges in the
US and a soft landing in China. Regional GDP
growth is expected to be +3% in 2013, improving
as countries wade through political transitions,
establish policies and benefit from strengthening
global economic conditions.
GDP should average +3.7% in 2014 and +4.8%
in 2015. A risk to the outlook is oil prices, which
could take some steam out of fiscal stimulus for
the region’s oil exporters, particularly as prices are
expected to weaken through 2015.
Egypt, the region’s largest economy, will remain
listless in coming quarters as the turbulent political
environment slows government transition and
policy reforms stall. GDP growth of +2.6% is
expected for 2014, with a modest push provided
by government spending being the main driver.
The inability of the InternationalMonetary Fund
(IMF) and Egypt to agree to a loan programme
continues to hold back an improvement in the
outlook, although the tenets of the agreement will
certainly bring about more strenuous economic
conditions in the short term.
Construction has been a savior of the economy
recently, but Egypt cannot rely on this sector
to drive growth forever, as some indications
increasingly point to a slowdown in the short- to
medium-term.
Suez Canal activity will suffer not so much from
the internal discord but more from continued
weakness in Europe. So the outlook is tied, now
more than ever, to political developments. For the
moment, Egypt’s near-term economic outlook,
like its politics, remains in an extreme state of flux.
Morocco
Morocco’s economy depends on agriculture for
15% to 20% of activity, and favourable weather
has fostered a rebound. Nevertheless, headwinds
to growth persist, most notably the ongoing
weakness in the Eurozone, Morocco’s main
trading partner.
Morocco has announced the suspension of US$
175 billion of public investment spending (about
2% of GDP) to help its fiscal deficit. Looking
ahead, growth will accelerate as external demand
returns, with GDP growth in the +4.5% to +5%
range over the medium term.
Meanwhile, Tunisia’s stability and progress on
the political front was set back by the assassination
of opposition leader Mohamed Brahmi, which
will effectively push back elections into 2014.
Tunisia received a boost of confidence striking
a deal with the IMF in June, and will likely see
further economic gains in terms of foreign aid and
investment once political conditions stabilise.
Although much depends on the political
situation, HIS Global Insight expects the recovery
to gain momentum in 2014, with real GDP
rising +4.2% as the transition process moves
forward and global economic conditions improve.
Weak demand from Europe remains a drag on
Tunisia, with strong links through trade, tourism,
investment, and remittances.
Algeria remains dependent on the hydrocarbon
sector for high public spending and subsidies to
keep its economy afloat. Thus, the probability of
an extended period of falling global oil process
poses a risk.
Algeria’s continuing funding of its Public
Investment Programme, designed to upgrade
infrastructure and provide greater affordable
housing, is of particular importance. Investment
in enhancing the production and distribution of
electricity will be a critical growth driver. Algeria
will spend US$ 286 billion (about 150% of 2012
GDP) on economic development in 2014.
Construction
Construction spending in North African
countries is not well tracked. However, given their
emerging market nature, virtually any increase in
GDP requires a similar increase in construction
spending.
As such, GDP growth is a reasonable proxy for
construction spending, at least on a relative basis
across countries. There is a surprising diversity of
GDP growth prospects across the region, ranging
from barely over +3% in Sudan to better than
+7% in Libya.
Similarly, while the region offers relatively high
risk across the spectrum, there are significant
differences. The North African investment Risk
chart displays GDP growth over the next five
years in the context of investment risk.
One cannot view regional risk in isolation, so
the chart includes two landmarks. The first is the
large yellow bubble which represents the average
risk and growth prospects for the 69 countries
that IHS Global Insight includes in its Global
Construction Outlook. The smaller red bubble
represents the average values for all countries.
The size of the bubble reflects the size of each
North African Investment Risk
5.6
4.0
3.0
2.0
1.0
5.0
6.0
7.0
8.0
19.5
33.5
47.4
61.4
75.3
REAL 2010 USD, 2012-17 CAGR PERCENT
FIVE-YEAR CONSTRUCTION RISK SCORE
●
Median - GCO
●
Egypt
●
Morocco
●
Sudan
●
Libya
●
Median - All
●
Mauritania
●
Algeria
●
Tunisia
