How is the Middle East emerging from COVID-19?

As the global economy heals from the trauma of the pandemic, things are generally more positive for the MENA region – a broad area stretching from the oil-rich Gulf states out to the east, right through to the developing economies of Levant and North Africa in the west, as well as its fragile and conflict-affected countries dotted in-between.

As in so many other parts of the world, lockdown measures, interrupted supply chains, plummeting tourism numbers, lower labour remittances and the temporary collapse of crude oil prices all added to the initial malaise.

The World Bank estimates COVID-19 will have cost MENA economies $200 billion by the end of 2021 and is predicting an “uneven” recovery in the months ahead¹. But it does expect the region’s GDP to grow 2.8% in 2021 after contracting 3.8% in 2020¹.

However, context is key when assessing the region’s fortunes: “It’s hard to talk about MENA as one big whole,” says Dr Sanam Vakil, Head of the Middle East and North Africa Programme at Chatham House, the international affairs think-tank.

“The resource-rich Middle Eastern Gulf states – the UAE, Saudi Arabia, Qatar and Kuwait in particular – were able to shut down quickly to deal effectively with COVID-19, and provide the subsidies necessary for their populations. Whereas some of the other nations weren’t quite as nimble and couldn’t draw on big balance sheets.

“But the pandemic has given the region – which has been beset with a number of conflicts over the years – a moment for pause. It’s forcing countries to prioritise economic recovery rather than regional competition. They know instability isn’t going to encourage tourists to return or bring back foreign direct investment.”

Recovering from the shock of COVID-19

The region has long known that its substantial oil and gas reserves will one day run dry, which is why it’s slowly weaning itself off its most precious resources. Diversification has always been the future – through tourism and construction, as well as the creation of high-tech growth economies.

Yet, COVID-19 stopped everything in its tracks – in 2020 at least. “At first, there was a focus on just ‘getting through’ for a lot of our wealthy family clients,” says Sarah Woolfenden, Head of Barclays’ Middle East and North African London team, and Market Manager for the Middle East Private Bank.

“Many are invested heavily in industries linked to oil and gas, tourism and construction – all sectors that were initially really badly hit. Their focus was primarily on cash flow and liquidity.”

The more recent oil price spike has provided a much-needed fillip – helping the Gulf states especially to accelerate their recovery, and giving economies a cushion sorely lacking in 2020. Tourists, too, are beginning to return.

A study in September 2021 by Oxford Economics² found that the oil-rich Middle Eastern economies had already recovered almost all their pandemic losses and could even be faring slightly better than the rest of the world in the post-pandemic recovery³.

A brighter future beckons for the fast, nimble and increasingly ambitious economies of the Gulf. “There’s such an entrepreneurial spirit in the region,” says Woolfenden. “Take water scarcity and the end of the oil era. They’ve been under pressure to deal with these big issues for many years. Yet, they’ve always adapted. And whatever the next big issue, they will again. The region is incredibly agile.”

Investment in green technology and sustainable energy projects is also on the rise. Momentum, too, is building around environmental, social and governance-focused (ESG) investing. In an April 2021 survey of Middle Eastern CEOs by consultancy firm PwC⁴ 46% of regional respondents said they aim to increase investments in ESG and sustainability initiatives over the next three years as part of their post-pandemic transformation planning. This strategic pivot echoes the broader findings of the 2021 Investing for Global Impact report, to which Barclays Private Bank is a key contributor.

Where next for Dubai?

Dubai has long been a place for superlatives; home to the world’s tallest skyscraper, the world’s fastest rollercoaster and highest infinity pool. The list goes on, and it’s why the modern-day oasis continues to attract people from far and wide.

But during the pandemic, Dubai saw some of its wealthy expats leave for home. The Emirate is now offering incentives to draw these skilled professionals back, and to better cater to the evolving needs of its resident population – with its low-tax and low-cost-of-living regime.

“Right now, Dubai is one of the most attractive places in the Middle East for wealthy families,” says Rahim Daya, Chief Executive of Barclays Private Bank in Switzerland and Head of the Middle East.

“We’re also seeing our clients in the region becoming much more sophisticated with their money. They want corporate-like family office structures in place to manage their wealth and deal with important issues such as succession planning."

Why it pays to have a back-up plan

Wealthy families in the Middle East have also long understood the benefits of having a back-up plan, as a way of dealing with political and economic ambiguity.

A decade on from the Arab Spring uprisings, and geopolitical rumblings continue in the region. Over the years, Middle Eastern countries have seen everything from shifting alliances to religious hostilities, regime change and political manoeuvrings.

If instability does occur, then things can change quickly in a country – meaning assets and investments potentially becoming inaccessible or losing their value.

“The COVID-19 pandemic has been something of a realisation that you need to have a diversification of assets in case there is a ‘what if’ moment,” says Woolfenden at Barclays.

As with so many things in life, it’s often about expecting the unexpected. And if the last 18 months have taught us anything about the MENA region, resilience and adaptability are valuable qualities. 

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