Industrial sector boosts economic growth

This is the second part of The Araba Monetary Fund paper on Joint Economic Report 2017, an overview of economic developments that took place in the region during 2016.

– Editor

It generates around 6 percent of total GDP of the Arab countries as a group. Agricultural Output in 2016 was recorded at about $142.1 billion, down by 1.4 percent compared to the previous year. The per capita share of the agricultural product reached $389.0 in 2016.

Despite the critical importance of the agriculture sector to the Arab economies and the progress made over previous years, such progress remains modest and constrained by the limited cultivated area, scarce water resources, low efficiency of irrigation and limited irrigated area. In addition to, the technological gap between the outputs of agricultural research, the real needs of agricultural development as well as the low crop and livestock productivity in most Arab countries.

In 2015, Total Agricultural Land Used in Production was only 60 percent of the total arable land. Rain-fed areas account for about 55 percent of total seasonal agriculture areas, against 17 percent for irrigated land. In 2016, crop and livestock production recorded growth at 3.1 percent and 2.0 percent, respectively, due to the increasing number of farms using modern agricultural production systems and improvement of agricultural inputs.

Total Renewable Surface Water Resources in the Arab region are estimated about 296 billion cubic meters per annum, of which about 50 percent is used, while the rest is wasted. About 88 percent of this amount goes to agriculture use; 7 percent goes to domestic uses and 5 percent to the industry. The efficiency of the use of water is low at a 50-60 percent due to the widespread use of traditional surface irrigation methods in more than three-quarters of total irrigated land in the Arab region.

In 2015, The Agricultural WorkForce accounted for about 20 percent of total workforce in the Arab region. Per capita contribution to the added value of agricultural labor was about $5535.0. This reflects a growth rate of 2.1 percent compared with 2014. Agricultural labor in the Arab region receives low wages relative to other sectors.

As to Intra-Regional Trade in Agricultural Products in the Arab region, the total value of the agricultural exports increased from about $24.9 billion in 2014 to about $25.1 billion in 2015; there was a 0.8 percent growth. On the other hand, the total value of agricultural imports dropped from about $90.8 billion to about $85.1 billion during the same period; a 6.3 percent drop. This is explained by the drop-in prices and weakening demand for certain agricultural products. The agricultural trade deficit was about $60 billion in 2015, down from $65.9 billion in 2014.

Industry

The performance of Arab economies during 2016 reflects several factors, including low oil prices, slowing growth of the global economy, the internal developments that have affected some Arab countries. Total industrial GDP in Arab countries in 2016 was about $701.0 billion, or 29.9 percent of total GDP for the Arab region, against 32.9 percent in 2015. Extractive industry GDP in the Arab region in 2016 dropped to about 18.8 percent from 21.9 percent of total regional GDP in 2015. Following a similar trend, manufacturing performance indicators showed a drop-in value added from $268.1 billion in 2015 to $259.5 billion in 2016, or a drop at 3.2 percent. Manufacturing GDP in Arab countries in 2016 was about 11.1 percent of total GDP for the Arab region.

The industrial sector in the Arab region accounted for about 17.8 percent of job creation. It also made a significant contribution to economic growth and better standards of living in Arab countries. Average per capita GDP in the industrial sector has recorded about $1917.0 in 2016. Exports of extractive industries and manufacturing accounted for over 90 percent of total exports of the Arab region.

Oil and Energy

In 2016, World Oil Market went through a series of developments driven by the changes in global demand and supply levels with ensuing changes in oil inventories. These led to a sharp drop in Global Oil Prices that affected oil trade movements. Within OPEC, Arab oil producers played a significant role in ensuring a relatively stable oil price, particularly in the second half of 2016 following an agreement to cut oil production. Moreover, several other factors, mainly geopolitical conditions in the region, affected oil market.

Arab countries made Four new oil discoveries and four new gas discov-

eries during 2016. The Arab region in 2016 recorded a slight 0.6 percent increase in Proven Oil Reserves to reach 711 billion barrels, representing 55.6 percent of global proven oil reserves. Also, in 2016, the Arab region recorded a slight 0.2 percent increase in proven natural gas reserves to reach 54.4 trillion cubic meters, accounting for 27.7 percent of global proven natural gas reserves. The Arab countries’ oil supplies reached more than 25 million bpd, or about 32.0 percent of total global crude oil production. Natural gas production from the Arab region in 2016 increased at 3.3 percent to reach 595 billion cubic meters, about 16.2 percent of total global marketed natural gas production,

In 2016, Energy Consumption in Arab countries increased at 2.4 percent

to 14.7 Million boe/d. Oil and natural gas remain the main sources of satisfying demand on energy in Arab countries. These sources accounted for 98.3 percent of total energy consumption in the region during the year.

Annual average prices of main export crudes in Arab countries during 2016 dropped at varying rates, although it significantly lower than the rates of decline in prices during the previous year. This caused a significant Drop in the total value of oil exports of these countries. Preliminary estimates show that the total value of Arab oil exports has reached about $308.1 billion in 2016, down from $339.6 billion in 2015, a drop of 9.3 percent.

Public Finance Developments

Fiscal conditions in Arab countries

in 2016 reflected weak global oil prices on international markets and the uncertainty on the outlook. Oil revenue in Arab oil-producing countries dropped, thereby creating strains on budgets and fiscal positions in these countries. On the other hand, lower oil prices had positive implications for fiscal space in Arab countries with diversified economies. They helped them reconsider oil product subsidy, cut down spending and reduce fiscal pressures.

Despite the host of challenges that faced Arab countries on the fiscal front, Arab countries continued with plans to enhance fiscal discipline and sustainability. In this respect, Arab oil-producing countries have continued with economic diversification efforts, adopted several measures to diversify public revenues away from oil revenues through

enhanced non-oil revenues, with a view to strengthening budget resilience vis-àvis, shocks triggered by lower oil prices. Arab countries with diversified economies continued with fiscal reform policies that aim at widening the tax base and enhancing collection efficiency and tax compliance, with ensuing positive impact on public revenues collection in 2016.

On the expenditure side, Arab countries doubled their efforts to enhance public expenditure efficiency and to reorient expenditure toward capital expenditure and social spending with a view to supporting productive capacity, improving human development, accelerating growth and reducing poverty. Streamlining and controlling public expenditure have been one of the important policies adopted by Arab

countries with a view to mitigating the spillovers of lower oil prices. The same efforts assumed greater importance for other Arab countries that have limited fiscal space, with a view to mobilizing necessary resources for meeting development needs and increasing spending on infrastructure.

On the other hand, fiscal conditions in a number of Arab countries were adversely affected by domestic conditions experienced, with ensuing negative implications for investment and other economic activities. These conditions created downward pressures on the tax base and public revenues. Furthermore, their persistence had significant negative economic and fiscal implications, with ensuing strains on the budget.

To be continued tomorrow