Regional Report: North Africa fights battles on many fronts
05 June 2020
No geographic region has been spared the health and economic crisis caused by the Covid-19 pandemic, but North Africa is particularly troubled as it faces additional challenges resulting from related and ongoing problems associated with the oil market.
Construction output for the Middle East and North Africa (MENA) region struggled before Covid-19, due to heavy reliance on the oil market, political unrest in some countries and widespread poverty. As a result of the current crisis, analysts are predicting a more significant economic contraction than previously projected.
In mid-March, data and analytics company GlobalData forecast 2020 construction output growth at 1.4% for the region, but has since cut its projection to -0.8%. For perspective, as recently as the fourth quarter of 2019, the region was expected to see 4.6% growth.
“Oil and gas dependent countries will face funding challenges given the decline in oil prices, which will have a negative impact on investment in major public-funded development projects,” explained Yasmine Ghozzi, economist at GlobalData.
“Although an historic agreement on production cuts was reached on 12 April between OPEC members and the group’s major oil producing allies to cut production by 9.7 million barrels per day, oil prices are set to remain at low levels given the severe decline in global demand.”
Ghozzi continued, “In North Africa, the [Covid-19] outbreak threatens to devastate Egypt’s US$12.5 billion-a-year tourism industry, which accounts for 12% of GDP [Gross Domestic Product], and will likely have a severe impact on the commercial buildings works, as investment plans in the hospitality sector are expected to be halted, if not cancelled outright.”
The great lockdown
While the situation is difficult all around, economists say some countries in North Africa are faring better than others.
The latest predictions from the International Monetary Fund (IMF) indicated that almost every economy across the MENA region is forecast to contract this year. Egypt is the only country expected to post any growth, at 2%, which is much lower than the 5.6% expansion seen in 2019.
According to the World Economic Outlook, April 2020: The Great Lockdown, oil exporters are generally expected to fare worse than oil importers in 2020. While those selling oil are expected to suffer a 3.9% contraction in their economies, those which rely on imports are forecast to see a decline of 0.8%. Across the MENA region as a whole, the decline is set to be 3.3%, some 5.9 percentage points lower than forecast by the IMF in its previous World Economic Outlook in January.
The latest prediction for the MENA region is slightly worse than what’s predicted for the global economy, which is expected to shrink by 3% this year, the IMF reported. These figures are based on the assumption the lockdown conditions that governments have imposed will peak in the second quarter of this year and start to be reversed in the second half.
Gita Gopinath, economic counsellor and director of the IMF’s Research Department, noted in the report that if lockdown conditions need to be significantly extended, the economic outlook will naturally darken accordingly. As it is, the so-called ‘Great Lockdown’ will represent, “the worst recession since the Great Depression, and far worse than the Global Financial Crisis.”
Gopinath also wrote that the cumulative loss to global GDP over 2020 and 2021 from the coronavirus crisis could be as much as US$9 trillion, more than the economies of Japan and Germany combined.
Egypt on hold
Under positive economic conditions, Egypt is the shining star in North Africa, relying heavily on its bustling tourism industry, but that has been severely hobbled by the ongoing pandemic.
Egyptian President Abdel Fattah al-Sisi recently postponed the moving of civil servants to a planned new administrative capital city to 2021, as well as the completion date of other large construction projects, due to concerns over Covid-19.
This is the latest setback in Egypt’s plan to create a new administrative capital. The project had already been subject to delays, cost increases and question marks over its suitability.
The government’s plan to build a new capital approximately 700km² in size 45km to the east of Cairo has an estimated cost of US$58 billion.
The first group of civil servants was to be transferred to the government district in the still under-construction new administrative capital this June. However, according to a statement from the government the decision to delay was made, “due to the circumstances and repercussions of the process of combating the spread of the new coronavirus either at the national level or globally.”
The government also postponed the launch of other large building projects, including the Grand Egyptian Museum and the National Museum of Egyptian Civilization to next year. The Grand Egyptian Museum was due to open during the last quarter of 2020, and the official launch of the National Museum of Egyptian Civilization, which was opened partially in 2017, was planned for 2020.
Trouble in Maghreb
North Africa, specifically the Maghreb region which is made up of Morocco, Tunisia and Algeria, is bracing for an unprecedented economic contraction, even if the coronavirus crisis were to be contained soon, according to Arezki Daoud with The North Africa Journal.
The economic growth outlook for Morocco was already compromised before the appearance of Covid-19. The country is experiencing the second year of a severe drought, which has already halved the production of wheat in 2019 to about 5.7 million tons, down 50% from 2018. This trend is expected to continue this season, heavily impacting the entire economy, Daoud stated.
“Then came the coronavirus, which will likely have more adverse effects on the broad economy, even if the country’s energy bill will naturally be reduced due to the drop in oil prices,” Daoud reported. “Morocco’s High Commission for Planning (HCP), which is one of the main sources of official data, has already warned that its forecast will be revised downward… likely shaving their January growth forecast of 3.5% to something like 2%.”
Daoud added, “Even assuming that this rate is too optimistic, a 2% GDP growth will mean the worst economic performance for Morocco in over 20 years.”
A large problem for Morocco is that its traditional and strongest trading partners are in turmoil, Daoud stated. France is a major consumer of Moroccan goods and a major source of tourists to the kingdom, but with tourists staying home, the travel and lodging industries in Morocco are bracing for several months of crisis.
In Tunisia, many economists are speaking of a double-digit GDP contraction that could reach -15%, Daoud reported, noting that nearly one quarter of a million workers in the tourism sector have already been laid off.
Just as in the case of Morocco, industrial output in Tunisia is set to further contract due to a decrease in global demand and the sectors that are expected to be most affected are those that are labour-intensive. The service industry will not be able to compensate the losses recorded elsewhere, and that could have an impact on the more than half a million workers employed in that space, Daoud reported.
Algeria will likely show the most decline on the economic front in the Maghreb region. Having benefited from peak oil prices in the 2000s, the country is facing a steeper fall from far above, with the potential for more political turmoil over the next two years.
Is tourism dead?
Beyond the difficulties involved in implementing large-scale social-control measures, even for regimes with a high coercive capacity and an authoritarian nature, the economic and social cost of the drastic restrictions being imposed by Arab governments can be overwhelming and, ultimately, unbearable. This is according to Haizam Amirah-Fernandez in the paper, Coronavirus In Arab Countries: Passing Storm, Opportunity For Change Or Regional Catastrophe?
“In the most extreme situations, millions of refugees and internally displaced persons living in camps or substandard housing without minimum conditions of hygiene and health, the human cost could be massive if the pandemic reaches them,” Amirah-Fernandez wrote. “In the absence of an effective vaccine against Covid-19, several areas in the Middle East and North Africa could become new hot spots for the virus that causes it, leading, in the worst case scenario, to the isolation of the region from the rest of the world for a long period of time.”
The first blow to these regional economies was received by the tourism industry, with massive cancellations of trips and tourist services.
“As tourism is a labour-intensive sector, the almost total paralysis of its economic activity due to the global coronavirus crisis is a severe blow,” Amirah-Fernandez wrote. “This comes at a time when projections earlier this year predicted a significant growth in tourism revenues throughout the region during 2020.”
Amirah-Fernandez continued, “As if all this were not
enough, the Covid-19 crisis has been compounded by the oil price war initiated by Saudi Arabia on 7 March, which has caused the price of crude oil to plummet to levels almost 20 years ago.
“The fall in demand from China, the main importer of
Saudi oil, once it was hit by the coronavirus, led Riyadh to seek a deal to cut production with other oil-producing countries. Moscow’s refusal to follow suit led Saudi Arabia to increase its production and offer discounts to its buyers in order to gain market share. This, in turn, caused Russia to increase
its production. The oversupply, coinciding with the economic slowdown caused by the pandemic, has led to an abrupt collapse in the price of oil, something that was not contemplated in any of the major forecasts at the beginning of the year.”
Real estate projects dominated the market before Covid-19
According to The Africa Construction Trends Report (2019), real estate projects constituted the majority of construction in North Africa. This accounted for 32.2% of the number of projects and 24.2% in terms of US dollar value.
The Transport sector accounted for 25.3% of the region’s total number of projects and 27.3% in US dollar value terms. The US$10.2 billion Algerian Hauts-Plateaux Motorway is one such transport project which aims to unlock and link the cities of Algeria’s highland areas that run parallel to the country’s East-West highway. These cities include Saida, Batna, Khenchela, and Tebessa, the report said.
The Energy & Power sector accounted for only 17.2% of total projects in the North Africa region, but included the largest share of projects by value at 28%. Egypt’s FourWinds Coal-Fired Power Plant is one such project.
Private domestic companies accounted for the largest share of construction activities within the region, producing 39.1% of projects. Egyptian construction companies were the most visible firms, building 24 of the 34 private, domestically constructed projects in North Africa.
Chinese construction firms accounted for 12.6% of construction in the region, representing a slight decrease from 12.8% last year.
North Africa’s top ten largest projects accounted for 54% of the total US dollar value of projects in all of the region. The top five projects were all US$10 billion or more in value.
The top ten projects were concentrated in the region’s two largest economies, Egypt and Algeria, with eight and two projects respectively.
Three coal-fired power plants in Egypt, with a combined value of US$25.5 billion, were indicative of the government’s efforts to increase power supply and subsequent industrial economic activity in the country, according to the report.
North Africa accounted for 19.2% of projects on the continent and 29.1% in terms of US dollar value. The number of projects in North Africa decreased by 25.3% from the previous year, while the value of projects decreased by 2.4%.
Within the region, Egypt had the most projects with 49, followed by Algeria with 17 projects, and then Morocco with 16 projects.
Egypt aims to revitalise tourism
Construction of US$254 million cultural hub slated
The project, which reports suggested is on schedule, is planned to be executed in two phases, according to Construction Review Online. The first phase will be completed in two years while the second will be completed within five years. The project is said to include the construction of two theaters, one of which will be open air, as well as the development of cinemas, restaurants, markets, a handicraft center, art galleries, multipurpose halls and studios with accommodations.
Reports said the project will be implemented at the site of Egypt’s decades-old tannery complex which was situated in the Magra El-Oyoun Fence. The government recently announced it had completed the relocation of all tannery workshops and factories in this area to the eastern Cairo region, giving way for the restoration of the archaeological site and its surroundings.
The project aims to develop the region, conducting cultural activities and giving space to showrooms and industries related to the archaeological area and museums.