2022: CEMEA’s Year of Economic Recovery
The diverse economies that make up the CEMEA region are expected to continue to recover this year, buoyed by the easing of government restrictions, return of consumer mobility, rebounding economic activity, progress of vaccination campaigns and higher oil prices for the major oil exporters, according to Mohamed Bardastani, Economist and Director of Business and Economic Insights, CEMEA, Visa.
“CEMEA’s real gross domestic product (GDP) is estimated to have risen by 4 percent in 2021, whilst growth is expected to moderate slightly in 2022 and 2023 to 3.9 percent and 3.7 percent, respectively” says Mohamed.1
While over the short-term, concerns about Omicron and rising case count remain, the negative economic impact of the new variant appears mild and limited, as evidenced by high-frequency indicators that capture monthly economic developments and consumer footfall traffic to retail shops.2 Encouragingly, barring any unforeseen developments related to new variants and policy restrictions, almost four out of five CEMEA economies will have returned to their pre-pandemic output levels by the end of this year.3
Economic diversification bearing fruit in the Gulf Cooperation Council
Economic diversification, a policy imperative for the Gulf Cooperation Council countries where the oil sector has historically played an outsized economic role, is expected to gather further momentum this year. The region is playing host to a number of global flagship events, which are expected to attract an increasing flow of international tourists and spectators. Expo 2020 was unveiled in October 2021 in Dubai and has already attracted 10 million visitors by mid-January 2022.4 Additionally, the FIFA 2022 World Cup is expected to be held in Qatar in November this year, with estimates suggesting that the international football competition will attract more than 1.2 million visitors.5 Elsewhere, in Saudi Arabia, several events were unveiled over the past few months to promote the travel and tourism sector, including the Red Sea Film Festival, the Riyadh Season, among other musical festivals and attractions.
Over the past year, a number of policy measures were announced by Saudi Arabia and the UAE to ease doing business and attract Foreign Direct Investment and talent. All this comes as part of the wider region's drive to create more diverse economies and lessen the reliance on oil.
The rise of African startups
“Investment inflows into African startups have been steadily rising over the past few years, a testament to the region’s increased attractiveness to investors, with young populations, rising income levels, growing technological adoption and high economic potentials” says Mohamed. Investment in African startups is estimated to have hit a record US$5 billion by the end of 2021, more than the amount raised in the preceding three years combined.6 Interest has been particularly strong from investors in the U.S., China and institutional banks. The prime target of these investments has been the growing fintech sector in Africa, alongside innovative tech startups, which have been increasingly leveraging the rising mobile and internet penetrations across the continent to expand financial inclusion and improve access to financial services.
Supply-chain disruptions and higher inflation
The COVID-induced lockdowns, policy restrictions, factory shutdowns, port congestions and delays have disrupted supply-chains across the world over the past couple of years. This has caused shortages of various materials; from coal and paper in China, to toys and toilet paper in the U.S., to vehicles and computer components in India, to cooking gas in Nigeria, to electronics in South Africa, to clean water and medicine in Lebanon.7
“The average cost of shipping and the average duration of door-to-door delivery have skyrocketed due to these supply-chain disruptions. Scenes of empty shelves in supermarkets in developed and emerging markets are not so uncommon as a result. While there are signs that the worst seems to be behind us, as some of these supply-chain disruptions are starting to ease, shipping costs moderating from their peak and some of the shortages being addressed, challenges to full normalization of supply-chains remain” says Mohamed.
Equally, and in direct relation to the supply-chain disruptions and various shortages, many key global and regional economies are expected to see higher consumer prices this year. Signs of heating consumer prices are already evident in CEMEA, with the inflation rates hitting multi-year highs in two of the largest economies in the region, Russia and South Africa, at 8.4 percent and 5.9 percent in December 2021, respectively.8 The surge in consumer prices is due to a number of reasons, including the various shortages and supply-chain disruptions highlighted above, low-base effect, higher shipping costs, rising energy and food prices, among others.
Surveys suggest that supply-chain disruptions and elevated consumer prices are likely to moderate in the second half of this year and gradually normalize thereafter – again barring any unforeseen developments.9
The digital transformation continues
While COVID-19 has clearly brought forward years worth of digital transformation into just a few months, there are increasing signs that this “digital transformation” and “digital adoption” process is still ongoing and the full benefits are yet to be realized.
An analysis of Apptopia data show that business-related app downloads (apps and platforms that enable businesses and SMEs to sell online and establish their digital presence) have soared from a monthly average of 200,000 in select CEMEA* markets in the pre-pandemic period to an average of slightly over 400,000 in the pandemic period – more than doubling. Similarly, the average number of daily active users of these business-related apps have surged by over three times from January 2020 to September 2021.10
“Interestingly, the biggest spikes in the number of downloads and active users didn’t happen in the second quarter of 2020, which was the peak lockdown period globally, when restrictions on mobility and physical activity were at their highest level. The biggest spikes in the numbers of downloads and active users happened in the latter parts of 2021, suggesting that the covid-induced acceleration in digital transformation is not complete – it is still ongoing and its full benefits are yet to be realized” says Mohamed.
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1Oxford Economics, Global Economics Databank
2IHS PMI Markit, Google Mobility Report
3Oxford Economics, Global Economics Databank: https://data.oxfordeconomics.com/dimensions-explorer
4Expo 2020 Dubai records more than 10 million visits, The National News: https://www.thenationalnews.com/uae/expo-2020/2022/01/18/expo-2020-dubai-records-more-than-10-million-visits/
5Qatar to attract over 1.2 million visitors for FIFA World Cup 2022, Doha News: https://www.dohanews.co/qatar-to-attract-over-1-2-million-visitors-for-fifa-world-cup-2022/
6African Startup Inflows Seen Hitting Record $5 Billion This Year, Bloomberg: https://www.bloomberg.com/news/articles/2021-12-08/african-startup-inflows-seen-hitting-record-5-billion-this-year
7The shortages hitting countries around the world, BBC: https://www.bbc.co.uk/news/explainers-58868636
8Trading Economics: https://tradingeconomics.com/russia/inflation-cpi, https://tradingeconomics.com/south-africa/inflation-cpi
9Supply chain disruptions may ease in the second half of 2022, insurer says, CNBC: https://www.cnbc.com/2021/12/09/supply-chain-crunch-may-ease-in-the-second-half-of-2022-euler-hermes.html
10Visa Business and Economic Insights Analysis of Apptopia data *Russia, Saudi Arabia, South Africa and the UAE
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