Economy of Middle East: Oppotunities amid challenges

In 2023, many countries in the Middle East suffered from high inflation, capital outflows, and currency depreciation, influenced by unfavorable factors such as the Federal Reserve's interest rate hikes, the Israeli-Palestinian conflict, and the crisis in Ukraine. To address these challenges, many countries have taken measures to accelerate economic structural transformation to enhance the intrinsic resilience and dynamism of economic development. Meanwhile, some Middle Eastern countries have expedited their efforts to "look eastward," expanding and deepening economic and trade cooperation with China, in hopes of gaining more development opportunities and momentum.

In 2023, countries like Turkey, Iran, and Egypt experienced inflation rates far above normal levels, and curbing inflation became an urgent issue for these nations. Currency devaluation accompanied inflation. Starting from February 1, 2023, Lebanon adjusted its official exchange rate to 15,000 Lebanese pounds per US dollar, while the pound's black market exchange rate plummeted to below 60,000 to 1 against the dollar. The Syrian pound depreciated by over 300% since the beginning of 2023, with the official exchange rate against the dollar currently around 12,500 to 1. The Egyptian pound depreciated by about 20% in 2023, with the current official exchange rate at 30.9 pounds per US dollar.

Currency devaluation has sharply increased the debt repayment pressure on some heavily indebted countries. After the outbreak of a new round of Israeli-Palestinian conflict, these countries already in economic distress faced even more difficulties. Analysts believe that this will further raise the borrowing costs for businesses and households, dampen consumption, and weaken economic growth expectations.

To escape from economic difficulties, many Middle Eastern countries in the past year have sought assistance from wealthy Gulf countries, cautiously promoted "de-dollarization," accelerated economic structural transformation, and adopted various measures to enhance the intrinsic resilience and dynamism of economic development.

Saudi Arabia is accelerating its economic diversification. Influenced by fluctuations in international oil prices and other factors, Saudi Arabia's economic growth rate significantly slowed in 2023, but non-oil economic activities grew rapidly compared to the previous year. In the future, Saudi Arabia's development focus will be on industries such as manufacturing, digital economy, renewable energy, tourism, logistics, and entertainment.

The United Arab Emirates (UAE) is also reducing the proportion of its economy accounted for by the oil industry and focusing on developing industries such as the digital economy and shipping logistics. In the first half of 2023, the UAE's gross domestic product (GDP) grew by over 3%, with non-oil industries accounting for over 70% of GDP. "The UAE will rely more on knowledge-based industries and has initiated a digital economy strategy, aiming to increase the proportion of the digital economy in GDP from 9.7% in 2022 to 19.4% within ten years," said UAE Minister of Economy Abdullah.

Egypt has introduced measures such as tax breaks, improving the investment environment, and encouraging the development of the private sector to support industrial development and promote the localization of imported goods production.

Iran, Turkey, and other countries are beginning to explore settling transactions in international trade through bilateral or multilateral currency agreements. Countries like Israel and Egypt are advancing foreign exchange reserve diversification to further reduce the weight of the dollar.

In recent years, some Middle Eastern countries have accelerated their pace of "looking eastward," continuously expanding and deepening economic and trade cooperation with China to increase their economic resilience and explore more development opportunities.

In November 2023, the People's Bank of China signed a bilateral currency swap agreement with the Saudi Arabian Monetary Authority, with an exchange scale of 50 billion yuan/26 billion Saudi riyals. The UAE recently renewed a five-year bilateral currency swap agreement with China with a scale of 35 billion yuan/18 billion UAE dirhams.

China has signed cooperation documents for jointly building the Belt and Road Initiative with more than 20 Arab countries and the Arab League. Many Middle Eastern countries are aligning their development strategies with the Belt and Road Initiative. In 2024, countries such as Egypt, Iran, Saudi Arabia, and the UAE became formal members of the BRICS, ushering in new development opportunities for these countries' economies.

Balash Dost, a scholar at Marmara University in Turkey, said that China's development model provides important enlightenment for developing countries. In recent years, China has rapidly developed in many industries, and technology has provided important support for economic development. Relevant Turkish companies should strengthen cooperation with their Chinese counterparts.

Walid Hani, an economics professor at Cairo University in Egypt, said that China has advanced digital technology, a vast database, and abundant achievements in economic development. Egypt can draw experience from China's green transformation.

(This article is jointly contributed by Zhang Jian, Wanghao and Yaobing, correspondents at Xinhua News Agency)