Regional Focus | The Levant

Author: Justin Keay

RISING FDI

Gregoriades, CIFA: Banks are deleveraging in Cyprus.

Little wonder then, that despite all the problems, foreign direct investment in the Levant increased dramatically last year over 2012. Jordan saw inflows of $10.9 billion against $1.3 billion, and Iraq, $15 billion against $950 million. FDI will rise dramatically once the full exploitation of the Levantine Basin gets under way. Israel is currently the only country commercially extracting and selling gas, but Cyprus (assuming agreement can be reached between Greek and Turkish Cypriots) and eventually Lebanon (once its politicians pass the necessary legislation) should benefit from what geologists say could be as much as 3.5 trillion cubic meters of gas and some 1.7 billion barrels of oil. The development of these reserves will invariably give rise to support industries and services. But observers warn that even though these reserves are economically viable to extract, it will take a lot of time for the benefits their development will generate to filter through.

“Particularly for Lebanon, there are a lot of caveats before we can talk about what the gas industry might look like in five or six years time,” says David Butter, Levant expert for Chatham House in London. 

So aside from Egypt, which most observers agree has begun the long journey back to sustainable economic growth, which Levant area economy currently shows the most promise?

Perhaps surprisingly for a country bordering both Iraq and Syria, one that has seen almost all its traditional trade routes disrupted by war, Jordan is the prime candidate. Its prospects are improving, underpinned as they are by strong international support and domestic reforms. Among the latter has been the gradual elimination of electricity subsidies, with the aim of bringing tariffs to cost recovery levels by 2016. This has helped bring the deficit down, although it is still around 8% of GDP.

“Growth (in Jordan) next year should reach 4.1%, led by a gradual improvement in both domestic and foreign investment,” says Hanan Morsy, senior regional economist in charge of the southern Mediterranean region, EBRD.

Jordan’s economy has benefited enormously from free zones, specifically the 370 million-square-meter Aqaba Special Economic Zone, located near that city’s international airport and close to the borders of Israel, Egypt and Saudi Arabia. It has already attracted well over $20 billion in foreign capital, with an oil terminal, a new port, new hotels, restaurants and housing all part of the ongoing development in this Red Sea hub, alongside the SME-focused Aqaba International Industrial Estate. The government is prioritizing investment in the energy sector, infrastructure and small business, confident that the measures it is also putting in place to improve the business environment will further encourage foreign investment inflows.

“Investors are coming back because—by the standards of the region—Jordan is seen as politically stable,” says Capital Economics’s Tuvey. “However, normal levels of growth will not return, either here or in Lebanon, until there is a clear improvement in the crises in neighboring Iraq and Syria.”

 

Economic Indicators, SELECT Levant Countries

Country
GDP (% change), constant prices
GDP, current prices ($bn)
Inflation (% change)
FDI Inflows ($mn)

 

2013

2014*

2013

2013

2013

Cyprus

-5.4

-3.2

21.9

0.4

533

Egypt

2.1

2.2

271.4

6.9

5,553

Israel

3.2

2.5

290.6

1.5

11,804

Jordan

2.9

3.5

33.9

5.6

1,798

Lebanon

1.5

1.75

45

3.2

2,833

Sources: GFMag.com economic reports, IMF, UNCTAD    *estimate