MENA needs to pivot towards sustainability during 2023. Here’s why and how
The Middle East and North Africa (MENA) was rarely out of the news during 2022, whether it was Qatar’s hosting of the World Cup and with it the region’s football dreams or the Arab States-China Summit in Riyadh, and the swift spread of anti-government protests in Iran. This pattern looks set to continue into 2023 during which Turkey will celebrate its centenary as a republic, the UAE will host COP28, and global investors will come knocking at the doors of the region’s sovereign wealth funds if the World Bank’s forecasts about a global recession are correct.
Beyond the eye-catching headlines, it will be a formative year for the region in several other ways. The decisions its political and business leaders make and targets they set in the coming year about the climate change agenda, the rights of women and economic reform, will shape MENA – and the world – for decades to come.
Advancing MENA towards sustainability
For the oil-producing Gulf states, the economic outlook for 2023 is robust, and the activities of OPEC will be closely watched. According to the World Bank’s forecasts GCC economies grew by 6.9% in 2022 while also keeping inflation under control. It is estimated that by 2027 their cumulative oil windfall will be $1.3 trillion in additional revenues. Countries like Saudi Arabia and Iraq will have the funds not only to offset high food prices – and with this, a domestic cost of living crisis of the sort witnessed elsewhere in the region – but to invest. This offers the perfect opportunity to start making the economic model more sustainable.
To be able to do this, governments in the region must maintain economic discipline, commit to reform, pursue economic diversification and – importantly for investors – display agile, well-explained decision-making. Deepening integration offers a relatively straightforward policy measure to stimulate and increase the resilience of the region’s economies. As things stand, just 18% of trade is intra-regional, compared to 34% in East Asia.
Recent IMF studies have highlighted how the skills deficit in the region stands at around 70%. Such a sizeable percentage is of concern and highlights the need to reimagine the region’s education systems with a focus on enabling personalized life-long learning. There is ample spending on education in the region, underlining the need for a skills revolution, which would enable the next generation to contribute to the success of their country’s economic competitiveness.
With funds and a focus on climate change, 2023 should be the year when Gulf States work on strategy with their regional counterparts to chart MENA’s course towards net zero. With the region hosting consecutive COP summits, the climate change discourse remains with the Middle East, offering the region a rare chance to find a collective voice on this issue. To support this, the Forum is convening a group called Leaders for a Sustainable MENA, which will be tasked with jointly identifying the most efficient routes to decarbonization and reducing the gap with other regions in terms of corporate sustainability practices.
This is important because MENA is at serious risk from the effects of the changing climate, in large part because it is warming at twice the global average. It is already prone to hot, dry weather, but this is developing into regular periods of drought. Most of the region’s capital cities are forecast to face at least four months of intense heat annually. During 2022, the region suffered a series of dust and sand storms, blamed on the increasingly arid conditions. These caused infrastructure damage, affected transport, destroyed crops and increased health problems.
The growing periods of extreme heat will make some areas uninhabitable, placing heightened stress on both crop production – almost 70% of which is rainwater fed – and already scarce water resources. If global temperatures rise by 2%, rainfall in the region is projected to fall by 20%-40%. If this wasn’t enough, rising sea levels will affect coastal areas and potentially salinize water in coastal aquifers and wells.
Economically, the outlook is equally dire: according to the IPCC, water-related catastrophes are projected to take 14% off the region’s GDP by 2050 (compared to a global average of 0.5%). Lower economic growth rates along with an increasingly uninhabitable environment marked by food and water insecurities, will result in growing socio-economic inequalities, and with this, the likelihood of public unrest.
The Middle East and North Africa is expected to be pivotal to global energy security. Endowed with ample natural resources and with among the lowest unit costs for renewable energy generation, the region can position itself at the heart of ensuring that the energy transition is sustainable – ultimately supporting planetary health – and just. This is important because soberingly, a recent IEA report suggested that during 2022, the number of people globally without access to electricity increased for the first time to 775 million.
All this makes more than a strong case for climate action that will help MENA’s populations and businesses adapt to the growing climate realities and prepare for future shocks. Pursuing measures now can only reduce the future cost, both of adaptation and disaster management. Research from the Forum and PwC suggests that increasing supply chain resiliency today minimizes businesses longer-term operational risks and has the potential to generate $1.7 trillion in net benefits by 2030.
Increasing numbers of MENA states are committing to net zero, including UAE and Oman by 2050 and Saudi Arabia and Kuwait 10 years later. More could be done and opinion is divided about the climate strategies the region should pursue. Notably, in response to the dust and sand storms of 2022, Saudi Arabia pledged to plant 10 billion trees. Even in the recent past, this type of policy would have been unthinkable for one of the world’s major oil producing hubs.
Research from the World Economic Forum and Bain & Company suggests another option – greening the business model of the top businesses in the region. The region’s largest companies are responsible for much of MENA’s carbon emissions; in fact, the top 20 state-owned enterprises produce the same amount of GHG emissions as Canada. Making their operations sustainable won’t be easy, given how most are at the core of the fossil fuel industry. But their size, influence and innovation potential ensure that their actions resonate disproportionately. To support this, the Forum will sign an MoU with the UAE at the Annual Meeting, calling on the private sector to share the burden in terms of emissions reductions.
It is imperative that business and government work together if the region is to make any substantive progress. Feeding into its longer-term success in this area, as well as the wider economy, is progress on gender equality.
Inclusivity is vital to sustained – and increasingly, sustainable – economic development. The Forum’s Global Gender Gap 2022 report highlighted some heartening trends for the region, but the fact remains that at the current rate of change it will take 115 years to achieve gender parity in MENA. An OECD study estimated that the region is losing $575 billion a year due to the legal and social barriers that exist related to women’s access to jobs and careers. Leaders can use the opportunities that 2023 will afford to pursue greater equality, many understanding that limiting the potential of one-half of the workforce hampers economic growth and development. Hearteningly, a record number of more than 20 women leaders from the Middle East will be part of global conversations during the Annual Meeting.
Universally, women suffer disproportionately during times of crisis and upheaval. The unrest in Iran that the death of Mahsa Amini sparked off, and which followed a previous round of water-related protests, underscores how the interaction between exclusion and climate change can destabilize societies.
The Global Gender Gap report highlights how women bore the brunt of the pandemic’s socio-economic fallout. The spectre of climate change taking hold in MENA will, unless there is swift change, exacerbate gender disparities, leaving women worse off. This is all the more galling given that repeatedly, women have been shown to be particularly adept and active in areas like sustainable finance. Given the growing impetus to address climate change, a shift towards a more inclusive and sustainable economy that takes advantage of both genders’ skills sets could constitute a double win for the region.
Last year was a reminder that the world needs as many wins as it can get. Looking to 2023, there are few countries lucky enough to have opportunities, with most facing a difficult year ahead. Parts of MENA will buck this trend and it is incumbent on them to use this to their current and future advantage.