A recent IMF report outlining the economic outlook of MENA states painted a positive but cautious portrait of North African states after the Arab Spring, with both potential and obstacles linked to the fortunes of the region’s energy sector.
From Rabat to Cairo, the post-Arab Spring region will depend heavily on energy use and production plans to get them through the next year, according to the IMF’s biannual Regional Economic Outlook Update for the Middle East and Central Asia report.
Unsurprisingly, the IMF report painted a rosier picture for oil and gas exporting states in the region, though they were quick to add that significant obstacles to growth and economic stability remained, mostly in the form of political uncertainties, periphery conflicts and the lingering impact of the European debt crisis.
In the case of countries like Algeria, Spain’s second recession in four years does little to help the government’s ability to keep natural gas revenues in line with public spending needed to keep an increasingly agitated population happy. For government officials in Algiers, oil revenues would need to stay at least above $100 a barrel to cover the expense of the country’s subsidy programs and state spending, according to a Financial Times report.
Instead of reducing government support systems, Algeria has moved to expand them with this week’s announcement that they would introduce legislation outlining new incentive programs for the country’s burgeoning shale industry. Pointing to projects in the US and Poland, Algeria have outlined a plan to increase revenue and expand domestic production through tax incentives and a pledge on the part of the state-backed firm Sonatrach to invest up to $80 billion over five years, with 60 percent going towards shale exploration and production, according to a Bloomberg report.
“Oil-importing, especially Arab Spring, countries will need to set out on their own paths toward economic modernization and transformation,” read the report. “But they will also need to rely on financial assistance and technical and policy advice from the international community to support homegrown reform agendas. “
Ensuring such outside funding has emerged as the most glaring challenge for both importing and exporting countries due to lingering instability and its impact on
foreign investment and other financial support coming from international institutions. Without political stability across a region heavy with new governments, investors and financing agencies remain cautious, slowing the process of infrastructure recovery in Libya. According to a regional energy analyst at CIDOB, a Barcelona-based foreign policy think tank, the lingering uncertainty about North Africa has forced a “wait and see” approach on the part of European and US investors, as well as funding institutions.
In Egypt, a lack of political consensus has hindered the new government’s ability to ensure a $3.2 billion development loan from the IMF and threatened much largr potential agreements from Gulf state funds. For their part, the IMF cited a lack of a clear direction as reason for pause. This political instability has been most evident in Libya as interest from much needed foreign oil and gas partners is being tested by an interim government seen as dragging its feet on providing opportunities and access to Africa’s second largest proven reserves.
Unfortunately, that stability is not restricted to whether political coalitions can organize in time or ensure safe and effective elections. Across the region, questions about violence and safety have plagued governments, making the prospect of attracting needed foreign investment all the more difficult. Most recently, tension between Sudan and the newly autonomous Southern Sudan boiled over into violence as a result of conflicting claims about oil reserves. The potential for the Sudanese conflict to spread has demanded the diplomatic attention of regional neighbors, including the Egyptian government who sent representatives to help ease tensions.
To the west, the potential threat of the Northern Mali separatist movement spilling over into the Southern Sahara areas of Libya and Algeria have kept officials and investors on edge in those countries.
In the case of Morocco, leaders in Rabat were able to boast one of the North Africa’s only steady increase in per capita income, but pitfalls remain, especially in light of the country’s weak domestic potential and heavy dependence on foreign resources. During a recent conversation with Forbes, Fouad Douiri, Morocco’s newly appointed Minister of Energy, Mines, Water and the Environment said the country will address development and energy issues by targeting renewable projects in favor of shale, offshore or traditional drilling operations. Outlining plans to install more than 2000 MW of solar, wind and hydro power, Douiri said that the government intends to « reduce Morocco’s annual imports of fossil fuels by 2.5 million tons of oil equivalent and to prevent the emissions of 9 million tons of carbon dioxide.”
While confident that they will be able to continue funding such efforts, the Moroccan government face significant fiscal shortfalls thanks to an increase in subsidies and public work jobs offered to calm growing political opposition last year.
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