According to the Institute of International Finance (IIF), net private capital flows to Emerging Africa and Middle East are projected to be broadly unchanged at circa US$ 60 billion in 2012.
FDI, which accounts for the bulk of the inflows, is projected to increase from $41 billion in 2012 to $49 billion in 2013
Although flows would rise to US$ 86 billion in 2013, they would still be well below the levels reached in each of the years between 2006 and 2010. FDI, which accounts for the bulk of the inflows, is projected to increase from US$ 41 billion in 2012 to US$ 49 billion in 2013. Portfolio equity inflows to the region are also expected to rise sharply, from US$ 2 billion in 2012 to US$12 billion in 2013.
Although all countries would benefit from higher inflows, the overall increase in net private capital flows to the region is mainly due to a substantial likely change for Egypt, where private flows are expected to shift from a net outflow of US$ 9 billion in 2012 to a net inflow of US$ 8 billion in 2013 as prospects for the Egyptian economy now look more favorable than a few months ago. According to the IIF, once the government signs the US$ 4.8 billion IMF loan, this could secure several billion dollars in concessional funding from other multilateral and bilateral sources, encourage the gradual return of FDI, and boost foreign demand for Egyptian equity and fixed income assets.
The capital account in Lebanon remains in large surplus, albeit much smaller than in the years from 2007 to 2010
Security ruptures and spillover from the Syrian crisis have weighed on the Lebanese economy. The current account deficit is estimated to have widened to 26% of GDP in 2011 and is likely to remain around this level in 2012 and 2013, reflecting a higher import bill and a drop in earnings from tourism. However, the capital account remains in large surplus, albeit much smaller than in the years from 2007 to 2010. Net private capital inflows to Lebanon are expected to remain low at around US$ 5 billion in both 2012 and 2013 (which is well below the peak of US$ 12 billion in 2009) due to continued political uncertainty. Most of these inflows continue to be in the form of FDI, particularly to the real estate sector, and nonresident deposits in domestic banks.
The combined surplus of Saudi Arabia and the UAE is projected to remain around $210 billion in 2013
Reflecting both higher average oil prices and increased production, the current account surplus of oil exporters in the Middle East remains very large. Despite continued strong domestic demand, the combined surplus of Saudi Arabia and the UAE is projected to remain around US$ 210 billion in 2013, close to the current account surplus of Emerging Asia, and larger than that of China. The accumulation of foreign assets, mostly in liquid fixed income securities, is reflected in large outflows of resident lending abroad and an increase in official reserves. While the bulk of these assets are invested in developed capital markets in the West, a number of countries (notably, Saudi Arabia, the UAE, Qatar, and Kuwait) are also providing financial support to other countries in the region whose balance of payments have come under pressure as a result of higher oil import bills and a drop in export earnings due to the political turmoil and the mild recession in the Euro.
Institute of International Finance, Bank Audi's Group Research Department
24 October
