Higher oil prices and geopolitical events are widening the gap between the “haves” and the “have nots” in the Mena region, said a report.

Oil exporters are outperforming, with oil revenues being used to fund investment in infrastructure and social programmes, said the Standard Chartered Mena Focus report.

In contrast, oil importers face challenges. Oil importers, such as countries in the Maghreb and the Levant, have high import bills, high unemployment and incredibly limited fiscal space to help boost their economies.

Given their dependence on foreign inflows, these nations are also vulnerable to changes in global risk appetite and the global economic environment.

GCC currencies have been orderly, with one-year forward points being stable around par. There is no sign of pressures, or outflows from the GCC, despite geopolitical tensions in the region, the report said.

Credit markets offer interesting opportunities and we are now more comfortable extending duration.

Standard Chartered has increased its 2012 real GDP growth forecast to 3.4 per cent from 2.4 per cent for the UAE and to 4.7 per cent from 2.9 per cent for Saudi Arabia as both countries are able to export more oil at higher prices.

High oil prices are having a direct impact on growth and a more important indirect impact by enabling investment in key infrastructure projects and social programmes, the report said.

Investment in infrastructure can have a longer-term impact on growth by improving productivity. Social programmes, however, are more short-term in nature. Salaries of civil servants have been rising, and this can help the economy by increasing the purchasing power of a segment of the population.

But it can also create distortions in the economy and in incentives by widening the salary gap between private- and public-sector employees further.

The two largest economies in the UAE, Abu Dhabi and Dubai, are both enjoying strong positive momentum. Dubai has faced significant challenges over the past three years, the result of the bursting of the housing-market bubble and years of over-leveraging.

The housing market is now stabilising, with the bid-to-offer spread in housing market transactions narrowing to pre-crisis levels. While there has been much focus on property prices, it is the volume of transactions that can be more important.

Prices do not offer any useful information if only a handful of transactions are taking place. In recent months property prices have stabilised, at lower levels. But with asking and offered prices converging, the volume of transactions is increasing, the report said.

Official data from Dubai shows that the number of transactions for apartments in 2011 was up by 30 per cent. Given that none of this increase came through price increases, it must be the result of more transactions.

The housing market is oversupplied, and it is worth noting that in 2011 another 13,000 units were completed and put on the market. There are 38,000 units scheduled to be completed in 2012.

As far as the real economy is concerned, the stabilisation of prices and the pick-up in transactions is a good enough situation for now, as it can improve sentiment and increase economic activity, the report said.

With the housing market stabilising, Dubai is finding strong support from the key pillars of its economy. Logistics, retail, and hospitality have all been performing very well, and signs in the first quarter of this year are positive. Dubai faces the challenge of significant debt maturities this year, but there is a perception that there is a plan in place and that surprises this year will likely be avoided.

Abu Dhabi benefits directly from higher oil prices. But in 2012 the main difference to the economy is likely to come from the non-oil sector. The government used 2010 and 2011 to re-assess several of its longer-term strategic projects. This resulted in anaemic non-oil economic activity. But there are signs that things are changing and Abu Dhabi is ready to kick-start many of the projects in the pipeline.

Saudi Arabia is the swing oil producer of the world, and has expressed its readiness to stabilise oil prices. An increase in oil production from Saudi Arabia will have a significant impact on headline growth. But one should not ignore the significant investment Saudi Arabia is undertaking in its non-oil sector and on social spending. There is vibrant economic activity, with the banks enjoying ample liquidity.

Qatar should see its headline growth slump to single-digit figures. This is in fact good news. Key infrastructure projects in the non-oil part of the economy will begin to play a more important role in driving growth. The organisation of FIFA‟s world cup in 2022 provides a catalyst.

Kuwait is benefiting from higher oil prices, but implementing the ambitious spending plans included in this year’s budget should prove to be a challenge yet again. Kuwait tends to undershoot its spending plans in its budget, with revenues overshooting. Even though this leads to a significant fiscal surplus, it does little to help develop Kuwait’s non-oil infrastructure.

Oman is in a good position, with low indebtedness, higher oil revenues and a focus on Eastern markets for its exports. The outlook is positive, but over-reliance on the government sector for job creation may create challenges in the future, said the report.

In Bahrain, given the importance of the services sector, social stability will be very important when it comes to improving sentiment and economic stability.

Bahrain’s economic growth is expected to rebound this year, the report said.

It will be supported by three factors: hydrocarbons, tight links with the rest of the GCC and a low base effect following last year’s unrest. Growth is picking up from last year, but there are significant headwinds. Ensuring social stability will be key, given the importance of services in the economy.

Services account for 40 per cent of Bahrain’s economy. The service sector shrank in 2011, but should show some recovery in 2012.

Returning to pre-crisis levels, however, will take time. The banking sector faces significant competition from other regional centres. In the hotel sector, the latest figures (January 2012) show that hotel occupancy is still low; occupancy rates are at 38 per cent and room yields at 36 per cent.

On this front, the International Automobile Federation’s announcement that it will return to Manama this year for the Formula One Grand Prix is good news and could restore some sense of normality. Social stability will be key to confidence and an ongoing service-sector recovery.

Hydrocarbons are resuming their role as key GDP growth drivers, and efforts will be made to continue to move up the value chain while exploring potential new fields.

Business links with Saudi Arabia will continue to play a major role. These are positive developments, and will support Bahrain’s gradual recovery, according to the report. – TradeArabia News Service