Exploring the Potential Impact of COVID-19 on Trade in the Arab Region

AHMED GHONEIM, 07 May 2020

Though the Corona virus is dealing an unprecedented shock to the global economy, the extent of its relative impact on Arab countries is still not clear. This blog aims to identify the particular characteristics of that shock on Arab countries, with special focus on trade prospects, and to identify the channels through which its impact is likely to spread.


One factor that will condition the way Arab countries experience the pandemic’s disastrous economic consequences is their relationship to oil, and the shock to that commodity’s markets. Arab countries are highly dependent on oil prices, either as producers, like the countries of the Gulf Cooperation Council (GCC), or indirectly, e.g. via the remittances channel. Fourteen of the League of Arab States’ members are oil and/or natural gas producers. On average, oil and gas represent 30-60 percent of Arab countries’ total GDP. Oil revenues constitute 47 percent of government fiscal revenues for a country like Yemen and 97 percent for a country like Iraq, with GCC countries ranging between those two figures.[1]


Remittances constitute a major share of foreign exchange receipts for countries like Tunisia, Morocco, Egypt, and Lebanon. In 2018, remittances to the Arab region reached $62 billion US, up 8 percent on 2017.[2] The outbreak of the pandemic has seen oil prices plummet: the OPEC daily basket price slid to $17.73 a barrel on 16 April,[3] from $51.68 on 2 March.[4] Prices have plunged more than 70 percent from their December 2019 level of $64 US per barrel[5] due to friction among the major world oil producers at the outbreak of the virus in early March 2020.[6] The breakeven price for GCC countries to balance their budgets was $70 before the pandemic struck and increased public spending has become a reality.[7]


With the outbreak of the virus throttling the global economy, including the ten largest economies,[8] this trend is likely to continue. The slowdown in the world economy, and reduced world trade (due to the impact of COVID-19 and the trade war between China and USA[9]) will likely increase pressure on oil prices. As a result, a large portion of Arab trade will be negatively affected. Prospects for trade in the Arab region will not be spared as world trade declines, due to global interruptions in the production systems and widening budget deficits all over the world.


A second effect of the pandemic specific to Arab countries – all net food importers – is  greater threats to food security. Arab countries were already among the most vulnerable to food insecurity due to climate change effects, high population growth, and water scarcity.  Malnutrition and stunting among children are alarmingly prevalent in the Arab region.[10] Worldwide panic buying of food as the pandemic struck, uncertainty about its duration and ultimate effects, and the rethinking of how to manage food supplies globally point to an upward trend of food prices worldwide. The empirical evidence on the impact of the 2006-2008 global food crisis on Arab countries shows that on average food prices rose by around 20 percent, less in countries like Morocco,  more in Egypt and Djibouti.[11] Only the drop in oil prices is likely to avert the increase in food prices. The spot per barrel price of Brent in 2008 reached $97 compared to $28 on 17 April,2020.[12] Upward pressure on food prices, on the other hand, is likely to come from turbulence associated with the pandemic accompanied by expected protectionist measures.


The third specific characteristic of Arab countries that will shape the effect of the pandemic is their limited inclusion in global value chains.[13] While generally regarded as a negative feature of Arab economies, it may cushion the blow of the  COVID-19’s economic shock in the Arab world[14]. Disruption of global value chains is likely to be a main form of economic damage, mainly because of China, but also in the rest of East Asia as well as the large world economies.[15] Limited integration of Arab economies in the global value chain (measured mainly by trade in intermediate goods)[16] and the relative absence of an Arab regional value chain implies that the supply side aspect is likely to be mild. However, the demand side effects of high dependence on value chains in Arab countries is expected to be severe as in the rest of the world.


The fourth and final characteristic of the Arab region in terms of COVID-19 damage is the likely impact on trade in services. This factor, frequently underplayed in trade analysis, is likely to hit the Arab economies hard. Tourism, now halted all over the world, is a major source of foreign exchange and employment for a large number of Arab countries, including[17] Saudi Arabia (Hajj and Omra pilgrimage); and Morocco, Tunisia, Egypt, UAE, and Lebanon (different types of tourism).[18] A sudden, extended halt to tourism is likely to have a significant negative effect on Arab countries’ balance of payments. The same is true for transport, where it plays a major role for some Arab countries as well as exportation of information and communication technology services. The 2018 ratio of exports of services to GDP in Arab countries reached around 9 percent in countries such as Egypt and Tunisia to 15-17 percent in countries such as UAE, Jordan, and Morocco.[19] Tourism (as proxied by travel) constitutes the lion’s share of service exports for countries such as Morocco (42 percent in 2018),[20] Tunisia (45 percent in 2018), [21] Egypt (49 percent in 2018),[22] and Saudi Arabia (66 percent in 2018).[23]


To conclude, the outbreak of the corona virus is expected to have unprecedented negative significant impact on Arab economies via trade channels. The Arab economies, like the rest of the whole world, will be severely affected, yet the specific nature of Arab countries’ economies and trade structures is likely to differentiate them from the rest of the world. Arab countries should rethink their trade integration. For example, intra-regional trade in agricultural goods and food staples, and regional cooperation on food stocks, can help serve national food security goals. Moreover, building up regional value chains and enhancing intra-regional trade in services after the end of the disaster can help them to mitigate the huge negative effects likely to follow from the COVID-19 shock.


[1] IMF (2016), “Economic Diversification in Oil Exporting Arab Countries”, paper presented in the Annual Meeting of the Arab Ministers of Finance, April 2016, Manama, Bahrain available at https://www.imf.org/external/np/pp/eng/2016/042916.pdf

[2] World Bank (2019),”Record High Remittances Sent Globally in 2018”, Press Release, April, 2019, available at https://www.worldbank.org/en/news/press-release/2019/04/08/record-high-remittances-sent-globally-in-2018

[3] https://www.opec.org/opec_web/en/press_room/5818.htm

[6] Standish, Reid and Keith Johnson (2020), “No End in Sight to the Oil Price War between Russia and Saudi Arabia”, Foreign Policy Report, March, 14, 2020, available at https://foreignpolicy.com/2020/03/14/oil-price-war-russia-saudi-arabia-no-end-production/

[7] Defterios, John (2020), “Why oil prices are crashing and what it means”, CNN Business, available at https://edition.cnn.com/2020/03/09/business/oil-price-crash-explainer/index.html

[8] See Baldwin and Weder di Mauro (2020), “Introduction”, in Richard Baldwin and Beatrice di Mauro (eds), Economics in the Time of COVID-19, A VoxEU.org Book, CEPR Press, available at https://voxeu.org/content/economics-time-covid-19-0

[9] The WTO was forecasting a slowdown in 2019 to 2.6 percent   of the growth of the volume the world merchandise trade down from 3 percent   in 2018 and was aiming that things can get better in 2020 if trade tensions are relaxed. See WTO (2019), “Global Trade Growth loses Momentum as Trade tensions persist”, press release available at https://www.wto.org/english/news_e/pres19_e/pr837_e.htm

[10] ESCWA and FAO (2017), Arab Horizon 2030: Prospects for Enhancing Food Security in the Arab Region: Technical Summary, available at http://www.fao.org/fileadmin/user_upload/rne/docs/arab-horizon-2030-prospects-enhancing-food-security-summary-english.pdf

[11] Ianchovichina, Elena, Joseph Leoning, and Christina Wood (2012), “How Vulnerable Are Arab Countries to Global Food Price Shocks?”, Journal of Development Studies (50) 9, available at https://www.researchgate.net/publication/254073314

[13] ESCWA (2017), Transport and Connectivity to Global Value Chains: Illustrations from the Arab Region, available at https://www.unescwa.org/publications/transport-connectivity-global-value-chains

[14] Arezki, Rabah and Ha Nguyen (2020), “Novel coronavirus hits the Middle East and north Africa through many channels”, in in Richard Baldwin and Beatrice di Mauro (eds), Economics in the Time of COVID-19, A VoxEU.org Book, CEPR Press, available at https://voxeu.org/content/economics-time-covid-19-0

[15] UNCTAD (2020), Global trade impact of the coronavirus (COVID-19) epidemic, available at https://unctad.org/en/PublicationsLibrary/ditcinf2020d1.pdf

[16] For a review on how to measure integration in value chains and what kind of policies affect such integration see OECD (2015), “Participation of Developing Countries in Global Value Chains: Implications for Trade and Trade-Related Policies”,  Summary Paper, available at https://www.oecd.org/countries/gabon/Participation-Developing-Countries-GVCs-Summary-Paper-April-2015.pdf

[17] It represented around 3.9 percent of GDP in the Middle East North Africa (MENA). See World Economic Forum (2019), Travel and Tourism Competitiveness Report 2019,  available at https://reports.weforum.org/travel-and-tourism-competitiveness-report-2019/regional-profiles/middle-east-and-north-africa/. For the Arab world, it represented around 4.5 percent of GDP and provided 4.5 million jobs 97 percent   of total employment in 2011) see World Bank (2013), Tourism in the Arab World can mean more than Sun, Sand, and Beaches, available at https://www.worldbank.org/en/news/feature/2013/02/11/tourism-in-the-arab-world-can-mean-more-than-sun-sand-and-beaches

[18] Arezki Rabah and Ha Nguyn (2020), op.cit.

Ahmed Ghoneim is a professor of economics in the Faculty of Economics and Political Science at Cairo University. He is a research fellow at the Economic Research Forum for Arab Countries (ERF) in Egypt, and at the Center for Social and Economic Research (CASE) in Poland.



The views expressed here are solely those of the author in his/her private capacity and do not in any way represent the views of neither the Arab Development Portal nor the United Nations Development Programme.


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