Key projects in the Middle East and North Africa (Mena) could be shelved if the European Union slips again into a fresh financial crisis as this means costlier funds for the region, a US market research firm has said.
Besides project suspension, financial turmoil in the EU would also hit oil demand and domestic consumption and this in turn would depress crude prices and exports by some Mena nations to Europe, Frost &Sullivan said in a brief report sent to 'Emirates 24|7'.
It noted that one of the downsides of a globalised economy is that a crisis in one country would affect the entire world with effects varying across different regions. The Mena region would be affected in numerous ways if the Euro zone slips into recession again, it said.
Firstly, recession in the EU would result in reduced oil demand and thus, reduction in the crude prices, the report said, adding that this would directly affect the oil exporting nations such as Saudi Arabia in the Mena.
However, this would prove to be an advantage for oil importing countries like Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia in the same region (Oil expenses account for around 17 per cent of the Gross Domestic Product in countries like Jordan), the report said.
It said a second negative factor is that the crisis would result in reduced overall consumption as European consumers tighten their belts in the wake of the financial crunch facing the economy.
This would impact the Mena countries that export products and services to the EU. It noted that Morocco, Libya and Tunisia’s trade with Europe accounts for over 50 per cent of their exports.
At a lesser level, countries such as Egypt and Syria would also be hit where trade with Europe accounts for 20 per cent of their exports.
“Thirdly, the EU crisis has led to an increased international cost of borrowing with liquidity crunch and tightening of credit conditions. This is due to the uncertainties surrounding the EU Banks’ balance sheets. Further, this would adversely affect Mena oil importing countries where EU Foreign Direct Investment is a main component of the gross FDI,” the report said.
“An increased cost of borrowing accompanied with reduced demand will have an adverse effect on the project returns. Increase in the interest rates may lead to rejection of projects owing to decreased returns.”
The report said the crisis could also adversely affect the tourism industry in Mena due to reduction in the European consumption patterns.