02 DECEMBER 2020

2021 Middle East Economic and Political Outlook

President-elect Joe Biden will take office at uncertain times. The ongoing pandemic and global economic challenges in the past few years may push his foreign policies into unchartered territories. The Middle East's economic and political strategy remains uncertain and continues to be shaped by changing global events.

The AmCham MENA Regional Council hosted a Webinar on December 2 on the "2021 Middle East Economic and Political Outlook." The Webinar featured Washington D.C.-based speakers Jon Alterman, Senior Vice President and Zbigniew Brzezinski Chair in Global Security and Geostrategy. He is also the director of the Middle East Program at the Center for Strategic & International Studies. The second speaker is Marcelle Wahba, President Emeritus and Distinguished Fellow at the Arab Gulf States Institute. The third is Ragui El-Etreby, Alternate Executive Director, The World Bank Group.

El Etreby analyzed the Middle East and North Africa (MENA) economies before the Covid-19 pandemic. The region experienced an array of economic challenges and witnessed a growth of around 1 percent in 2019, meaning "[the region] had limited fiscal and policy space when the crisis hit," he said.

Regional governments implemented an unprecedented set of stimulus measures and policies to alleviate the pandemic's far-reaching implications. Regional economies may contract by 4 to 5 percent. However, a rebound may be imminent during 2021. El Etreby noted that Egypt would record positive growth, with neighboring countries following later in 2021. El Etreby stressed four key challenges that may strike the region in 2021. The first is the "fluid and uncertain global context." The second is monetary and fiscal fatigue. The third point is a loss in human capital and rising unemployment and poverty. Fourth is geopolitical tensions and fragility.  That gives rise to critical questions, including how can regional players turn the demographic challenge into an economic opportunity? What is the state's optimum role in the economy? When will the quality of economic growth outweigh the headline GDP growth rate? When will the region genuinely integrate into the global, or at least regional, value chains? And finally, when will the region speak the Sustainable Development Goals (SDG's) Language?

Ambassador Wahba's discussion addressed the Biden transition, which she described as "unlike any other transition in recent history." While the U.S. national interests overseas will not likely change, how the new administration approaches them may differ. Wahba described President Biden as a globalist and multilateralist who prizes the transatlantic relationship, especially Europe. She noted that it is likely that he will reinvigorate NATO and that the U.S. under Biden will rejoin the Paris Agreement for climate change and will sustain the U.S.'s membership in the World Health Organization. Likely, Biden will also revive the Iran Agreement, she added. It will be interesting to witness Biden's foreign policies shaped depending on the senate's majority seat holders. According to Wahba, the Biden Administration's foreign policy team will focus more on preventative diplomacy. On the domestic front, which will be the administration's primary focus, the priorities will be to address the pandemic, economic recovery, issues of racial injustices, and immigration challenges.

Wahba touched on the relationship with China and Russia in addressing global economic challenges. Human rights and political reform issues will be part of the policy dialogue in the bilateral relationships in the MENA region. She added that the Abraham Accords signed by the UAE, Bahrain, and Israel "is very much welcomed by the Biden Administration and will be encouraged as a step in further stabilizing the region and taking economic leaps forward." Despite an imminent reduction of the U.S.'s military footprint, the Biden Administration is hesitant to disengage or entirely pullback from the region.

Alterman highlighted three transitions that will impact the region. First is the global energy outlook, the second is America's strategy, and the third is unemployment. Alterman noted that the pandemic introduced an overview of how the inevitable energy transition will impact the region. He added that this would also allow the region to better prepare for its implications. On the U.S., he shared that there will be strategic efforts to reduce the U.S.'s military footprint in the region and accentuate economic and diplomatic instruments and place less centrality on the MENA region. The U.S. may likely move towards more diplomatic and economic modes of partnerships with the region. He noted that the "focus is going to be a domestic focus, partly on the economics, and partly on the nature of the American social fabric." On unemployment, he highlighted the growing employment crisis in the region and emphasized the importance of addressing job creation, focusing on resilience to automation. Alterman shared that the Chinese economic transformation model excludes social and political transformation while "the U.S. model is that they are intertwined and inseparable." Populations and Governments will have to choose between the Chinese and U.S. models to determine the region's trajectory for the next century, he said.