July 2024 Al-Monitor Trend Report
2,242 words
A billion-dollar bet that could see the UAE become the Las Vegas of the Middle East is inching closer to reality: Emirati regulators awarded the country’s first lottery license on July 28, another step towards becoming the first Gulf state to legalize gambling. Of course, that move, like many others, was lost in an increasingly volatile news cycle and comes as Mideast powers are now hedging bets on an even bigger gamble that will shape their geopolitical and economic fortunes and futures: the US presidential election.
A whirlwind July has upended American politics, with implications rippling far and wide — including the Middle East. As the prospects of a Kamala Harris or Donald Trump presidency come into clearer focus, we can already see how players like Israel, Turkey and Saudi Arabia are maneuvering around the upcoming election as they weigh how Washington’s foreign policy (and MAGAnomics or now potentially Kamalanomics) will impact their agendas as they navigate regional turmoil and shifting economic priorities.
For instance, the very day Biden exited the race, July 21, Turkish media reported that President Recep Tayyip Erdogan believes a potential change in the US administration may be positive for Turkey's growing defense industry. That proclamation didn’t mention Trump, but other regional players are explicitly deepening ties with the former president with an eye on 2025.
Case in point: July saw Gulf real estate developer Dar Global tout plans to build new Trump Towers in Jeddah and Dubai. They follow another Trump-branded project in Oman announced earlier this year and similar dealmaking appears poised to continue. Saudi Arabia is clearly on Trump’s mind. In an interview published by Bloomberg on July 16, the candidate made clear that relations with Riyadh remain a focal point despite competing interests: Asked if he worries that increasing US oil and gas production would upset the Saudis, Trump said no and pointed to his good relationship with Crown Prince Mohammed bin Salman, while adding that he will “always protect” Saudi Arabia.
As a proposed US-Saudi defense pact dangles out of reach for now, Trump also blamed his political rivals for pushing Riyadh towards Beijing. “They don’t want to be with China. They want to be with us,” he said. Meanwhile, the kingdom remains content as ever to play both sides — just days after those comments were published, Chinese steelmaker Baosteel announced it was more than doubling an investment in Saudi Arabia to $1 billion. Regardless, a second Trump presidency could prove profitable for Saudi ambitions if Riyadh plays its hand correctly, but risks remain: On July 29, Trump, on his Truth Social platform, accused the nations of OPEC (led by Saudi Arabia) of “going all out to drive down oil prices” to aid Harris.
Although Trump would likely gut environmental policies — delivering a gift to those seeking to keep the world hooked on oil — his return could bring economic upheaval, from ensnaring the region in new trade wars to impacting oil revenues. Citibank forecast on July 25 that a Trump presidency could be net bearish for oil prices, including by pushing OPEC+ to boost output. The main bullish risk for oil markets, noted Citibank, would be Trump readopting a maximum pressure campaign on Iran, curbing its oil exports.
Looking ahead, the coming months will shed more light on the odds of a Harris presidency and whether her administration’s Mideast strategy would diverge from Biden’s. We’ll be tracking that and more. In the meantime, Al-Monitor’s July trend report explores other business and economic developments on our radar across the Middle East and North Africa (MENA).
Turkey’s natural gas hub: the end of a dream?
As outlined in a memo by Gerald Kepes, since the fall of the Soviet Union and successful domestic economic reforms of the 1990s, Turkey’s leadership and business elites have dreamed of becoming the “Suez Canal” of the 21st century global gas business.
Russia’s 2022 invasion of Ukraine turned Europe away from Russian gas, and massive increases in US LNG gave Europe a new geopolitically safer and more competitive source, while Central Asia gas is now largely seeking markets in China. Meanwhile, disputes between Baghdad and the Kurdish regional government have cutoff oil supplies through Turkey.
Turkish dependence on Russian energy has increased since 2022. As for its domestic gas, Turkey does not have adequate funding and capacity to fully appraise Black Sea resources, and disputes with Cyprus (and more recently Israel) have ruled out Turkish transit to European markets for those resources.
Domestic gas output increased to 0.85 bcm/y in 2023, from 0.4 bcm in 2022, due to the streaming of gas from the ultradeepwater Sakarya gas resource in the Black Sea. With Sakarya gas, national output should reach 4 bcm/y in 2026, and 15 bcm/y in ~2030 (20% of total gas demand). Other gas sources are modest.
THE TAKEAWAY: Turkey’s visions of becoming a gas hub will not be realized, as the opportunities that emerged following the fall of the Soviet Union have vanished.
LOOKING AHEAD: Kepes expects that the most likely scenario will be Turkey achieving a micro-hub status only. Meanwhile, Turkey must join the rest of the world in embarking on an energy transition strategy.
ANOTHER FACTOR TO WATCH: In July, news surfaced that Turkey plans to send an exploration vessel off the coast of Somalia later in 2024 to search for oil and gas as part of an energy cooperation deal between two countries.
Tech investment slump reaching critical stage for cash strapped Mideast startups
Startups in MENA raised a total of $882 million in H1 2024, down about 62% from the $2.3 billion raised in H2 2023 and 45% from $1.6 billion in H1 2023, according to data published by startup investment platform Wamda.
In terms of a market recovery, the macro picture remains mixed. AI is booming and US tech stocks rallied in 2023, but global startup funding in Q1 2024 stood at $66 billion, the second lowest total since 2018, reported Crunchbase.
H1 2024 results come after regional startups raised $4 billion in 2023, +1.7% over 2022, found Wamda. However, that total was boosted by 10 debt financing deals worth $1.77 billion, +256% over 2022. Remove debt and investment plummeted 35% last year. Above totals don’t reflect Israel, where funding totaled $4.3 billion, down about 52% from 2022, reported Crunchbase.
Saudi Arabia was MENA’s outlier in 2023, with investment there rising 159% to reach $2.3 billion and surpassing the UAE for the first time. Yet, 2024 has signaled that investment growth could be leveling off in Saudi Arabia, where startups raised $300 million in H1, down 46% from H1 2023, found Wamda.
To be fair, 2021-2022 also saw MENA startup investment reach record highs after the region’s digital economies boomed during the pandemic. Regardless, the local startup ecosystem was still just starting to mature when this slowdown emerged. Now, the economic uncertainty spooking investors has been amplified by geopolitical turbulence sparked by the Gaza war.
THE TAKEAWAY: Tech startup investment continues sliding in the Middle East. If this funding crunch persists into 2025, a growing number of startups will soon risk running out of money.
LOOKING AHEAD: 2024 will likely prove a challenging year for MENA startups, causing more pain before the market fully resets. A sustained downturn in Saudi Arabia (which isn’t guaranteed) could prove crippling for some startups attempting to scale into the kingdom.
ANOTHER FACTOR TO WATCH: There are some encouraging signs. For instance, many regional governments remain keen to support the sector, such as Qatar, which in February 2024 announced a funding program to invest over $1 billion into international and regional startup investors.
Algeria’s desalination ambitions come with heavy financial burden
Algerian authorities aim for daily desalinated water production to hit 3.7 million cubic meters by end-2024, and 5.6 million cubic meters by 2030, which will cover 42% of drinking water needs. This also amounts to a near doubling of state goals, which had initially looked at securing 22% of water needs through desalination by 2024.
Inadequate water supply and sanitation costs Algeria the equivalent of 1.5% of GDP annually, according to World Bank figures. Agriculture, which accounts for about 13% of GDP, is heavily impacted by droughts.
Algeria has faced protests triggered by water shortages as far back as 2002-2004. More recently, in the summer of 2021, the country’s 22 most-populated provinces (out of 58) faced challenges securing enough drinking water, producing more tension.
These pressures led the cabinet of President Abdelmadjid Tebboune to launch an emergency water plan in 2021. The government strategy, covering the 2021-2030 period, relies partly on accelerating the construction of desalination plants.
Since it began building desalination plants in the early 2000s, Algeria has switched from relying on foreign private partners to a state-centered strategy. All work on desalination plants is now done by a subsidiary of state-owned energy firm Sonatrach. Investment in its 2021-2030 desalination program already cost $2.1 billion, and an additional $2.4 billion will be spent.
Desalination remains the most expensive way to produce water. Technological advances might eventually reduce costs, but this reduction will be limited relative to other available water-sourcing methods. Once oil prices begin falling significantly, Algeria will be saddled with a costly and deficient water sector that will become increasingly expensive to run.
THE TAKEAWAY: As securing adequate water volumes for its 46 million people has become an economic, social and political imperative, Algeria’s government has redirected state policies to make desalination a key part of its long-term development strategy.
LOOKING AHEAD: Algeria is likely to meet its 2030 desalination goals and some cost efficiencies are secured, opines Serrano, but water production will remain expensive, with little private sector input.
ANOTHER FACTOR TO WATCH: Algeria’s upcoming presidential election in September 2024 will see Tebboune run for a second term. He is widely expected to win and maintain a strong grip on power.
Is Saudi Arabia’s $100B foreign investment drive starting to yield results?
Amid a growing hunt for cash to fuel Saudi Arabia’s sweeping economic overhaul, state-oil giant Aramco sold nearly $12 billion worth of shares in June 2024, delivering a long-awaited follow-up to its historic 2019 IPO. Crucially, Saudi Arabia touted that foreign investors snapped up the majority of shares this time — unlike its IPO, which had to rely on domestic demand.
In Q1 2024, Saudi Arabia’s FDI inflows rose 0.3% to reach $4.5 billion compared to a year earlier, according to government data. Its FDI inflows stood at roughly $19 billion in 2023, down from about $33 billion in 2022.
FDI still gravitates toward the kingdom’s energy sector. For instance, in 2022 its oil-rich Eastern Province ranked as the top destination for FDI inflows at $24 billion, followed distantly by Riyadh at $6 billion.
That hints at the broader struggles facing Saudi Arabia’s FDI drive, with global investors yet to commit heavily to Vision 2030. The reasons for that are many, with obstacles ranging from workforce limitations to reputational risks and a business environment that has been notoriously difficult to navigate as a foreign investor.
THE TAKEAWAY: At a moment when the kingdom’s FDI push is becoming more critical, Aramco’s new share sale could signal a breakthrough for Saudi efforts to attract outside capital needed to help fund Vision 2030.
LOOKING AHEAD: It’s unlikely that Saudi Arabia’s FDI floodgates will burst wide open in 2024, but some efforts to generate interest among global investors appear to be paying off — even if many still aren’t willing to commit capital to long-term nation-building plans.
ANOTHER FACTOR TO WATCH: Vision 2030 setbacks continue emerging, like Bloomberg reporting on July 11 that Saudi Arabia is likely to cut billions of dollars in spending on some of its biggest development projects. That includes mega city Neom, which could be allocated 20% less than its targeted budget for this year.
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