Even before Covid, indecisive policymaking and protectionism were draining Tunisia’s economy, according to the World Bank. The pandemic, combined with social, political and labor upheavals, dampened foreign direct investment (FDI) inflows. As a result, FDI fell 23% to $652 million in 2020 from $845 million in 2019, as recorded by the UN Conference on Trade and Development.

Along with other issues, the closing of Parliament in July 2021 brought further consequences. Fitch Ratings downgraded the country’s Long-Term Foreign Currency rating from B- to CCC citing liquidity risks and delays in reaching a loan agreement with the International Monetary Fund (IMF). Tunisia has been priced out of international capital markets since 2019.

Now, FDI has become even more critical, according to Keren Uziyel, analyst and country risk service manager for the Middle East and North Africa at the Economist Intelligence Unit. “FDI would certainly help external finances and the private sector,” she says.

Rich in Skills and Resources

Tunisia is rich in natural resources and has a skilled workforce, according to Kaouther Bouzamitta, director of common law studies and legal monitoring at the Central Bank of Tunisia. She also highlights Tunisia’s proximity to the European market and the country’s association agreement with the EU.

Ironically, the pandemic could lead to increased FDI from neighboring countries. “The disruption caused by the pandemic influenced multinationals’ decisions to reorganize the geographic and sectoral distribution of their production activities, generating new opportunities for Tunisia,” says Bouzamitta.

Also, the restructuring of investment regulations in 2017 encouraged investment, explains Sarra Ben Khelil, Tunisia researcher at the University of Ottawa. Tunisia’s new legal framework for investments reduced taxes and eased hiring restrictions for new companies. If a foreign company invests in Tunisia, it can employ 30% of its workforce from outside the country in the first three years. “But then this number lowers to 10% after three years,” she says.

The advantages have attracted a wide range of foreign companies. Among them: consultancies KPMG and Deloitte, hoteliers like Four Seasons and Movenpick, banks such as Citi and BNP Paribas and fast-food chains McDonald’s and KFC.

The advantages have also led to a sea change in retail business. “Until five years ago, we didn’t have the concept of the mall,” Ben Khelil recalls. “Now, new shopping malls open regularly.”

Notwithstanding the advantages, the Tunisian economy has an equally extensive list of risks. Social unrest appears likely to continue due to rising costs; general dissatisfaction is attributable to the gap between the promises of 2011’s Arab Spring and the current reality. Also, high unemployment has led to a brain drain of highly educated professionals.

Taken together, these factors produce a mixed and cautious outlook for investors. Tourism projects could be put on hold for the time being. “With the difficult economic situation, and the potential labor unrest around the need for fiscal tightening to get IMF support, I think you will see a resurgence of industrial action,” the EIU’s Uziyel says. However, energy and hydrocarbon projects would be more workable.

This story represents the final Frontier Market Report from our longtime columnist Al Emid, who passed away in Toronto at the end of April after a short hospitalization. A seasoned economic and financial writer with strong understanding of financial markets, Al also offered a nuanced and knowledgeable perspective on the Middle East in addition to developing nations. Fearless and energetic, he published several books, and worked in radio and podcasting as well as print. His creative and wide-ranging mind was always juggling multiple projects. Al had, as he liked to say, “been around.” He had contacts all over the world and often recommended other writers, many of whom remain trusted regular contributors.

We will all miss him, his feature stories, and his strong commentaries.

As the Covid-19 crisis drags on towards a new normal, Bahrain is moving forward with plans to improve growth in a post-pandemic economy. The growth in the country’s GDP sank in 2020 due to the crisis, but rebounded in 2021 to approximately 3.5% and will grow this year at about 3.2%, the World Bank forecasts.

The growth in the country’s GDP sank in 2021 but will improve this year to approximately 3%, driven by rising oil prices, according to Omar Al-Ubaydli, president of the Bahrain Economists Society. “That means the government has more money to spend, which means higher growth,” he says. Growth could drop to below 3% in 2023, he predicts, due to lower oil prices and reduced government spending, which would lead to lower consumption and reduced downstream spending.

Bahrain’s status as a financial hub is one of its many strengths, and its importance has increased with the kingdom’s need to diversify and reduce dependence on oil revenues. Other strengths include the United States-Bahrain Free Trade Agreement. Bahrain is one of only two Gulf countries with such a deal; the other is Oman. It also has a well-developed infrastructure, including port facilities, a well-educated workforce, tourism prospects aided by features such as Babylonian historical sites, and its close relationship with Saudi Arabia. That connection is boosted by the King Fahd Causeway, which links the two countries and facilitates trade between them. Plans call for another causeway, scheduled to open in 2027.

Support for the kingdom as a financial hub includes hosting the headquarters of the Accounting and Auditing Organization for Islamic Financial Institutions, which sets the international standards for Islamic finance, Al-Ubaydli explains. However, Bahrain has also benefitted from Lebanon’s misfortunes. As significant institutions shifted to Bahrain, Lebanon lost its status as a banking hub due to its political and economic difficulties. This trend will not likely reverse within the foreseeable future, as Lebanese banks have stopped lending and do not attract deposits.

Bahrain’s financial status has several drawbacks. They include its break-even oil price at $106.60 per barrel, referring to the price at which an exporting country can break even on its budget needs. By comparison, Saudi Arabia needs only $72.40 per barrel while tiny Qatar needs only $44.10. This disparity increases the costs of borrowing and the urgent need for diversification.

In 2020, according to Fitch Ratings’ April 2021 Rating Action Commentary, “Real GDP contracted by 5.8%, and government debt surged to 129% of GDP from 101% of GDP in 2019, owing to the combined impact of the coronavirus pandemic and sharply lower oil prices.” The agency adds that “foreign reserves declined to $2.3 billion in 2020” and that “the current account deficit ballooned to 9.4% of GDP.” Bahrain faces payments of $6.6 billion in external debt due at the end of 2024 and other large debts afterward; and it will continue to need annual issues of $2 billion to $2.5 billion, according to Fitch.

Finance Flexes Its Muscles

In the post-pandemic world, the financial services sector is a strong priority, according to Khalid Humaidan, CEO of the Economic Development Board (EDB) of Bahrain. “Financial services represent the largest non-oil sector that we have in the kingdom. They represent 17% to 18% of our GDP. We think the financial services sector in the next five years should be able to contribute around 20% of our GDP.”

According to Khalifa bin Ebrahim Al-Khalifa, CEO at the Bahrain Bourse, achieving that goal means making financial processes as easy and seamless as possible for companies and investors. “We have been a financial hub for a long time and it’s our job to maintain this competitive edge.”

These strategies are designed to build up the financial ecosystem over time. The Bourse guides promising organizations and companies from the startup stage to the small-to-midsize stage and eventually to public listing. It encourages companies to launch direct listings instead of more-expensive initial public offerings (IPOs), to save on costs.

“Right now, the cost of an IPO is too expensive [and] definitely not the first option for many companies,” says Al-Khalifa.

Boosting the Bourse

The Bourse has forged relationships with sell-side analysts at BlackRock, JP Morgan and BNY Mellon. For investors, its offerings include multicurrency trading facilities allowing for trades in major currencies. Offerings also include an electronic link between the Bourse and the Abu Dhabi Securities Exchange, resembling the connection between the Shanghai and Beijing exchanges. The linkage allows an investor in one exchange to execute a trade entirely on the other exchange. Citibank recently launched a global technology hub at its Bahrain offices, the first of its kind in the region, to employ 1,000 coders over the next decade. The Bahrain Central Bank provides its fintech regulatory sandbox to allow companies to test technology-based solutions.

Other foreign banks, including India’s ICICI Bank, France’s BNP Paribas, the UK’s Standard Chartered Bank and Pakistan’s Habib Bank, also have operations in Bahrain.

Increasing Bahrain’s status as a financial hub requires increased foreign direct investment (FDI), explains Jarmo Kotilaine, chief strategy and data analytics officer at Tamkeen, an organization mandated to provide private-sector businesses and individuals with assistance and training and to promote development of that sector. “[Being] a regionally significant player or a hub comes from external investors recognizing that and using Bahrain as such a hub, and one way they do that is through foreign direct investment,” he says.

That means moving aggressively to boost its human capital. In February, Bahrain introduced the Golden Residency Visa program, which lets individuals qualified by salary level and length of in-country residency or real estate ownership stay in the country indefinitely.

Boosting the sector’s financial picture also means slightly redefining FDI. “FDI … doesn’t [always] involve new entrants into the market,” Kotilaine says.

However, existing investors are encouraged to reinvest profits rather than repatriate them. That would keep more cash in the country.

“So instead of remitting profits to the mothership, they invest in growth in Bahrain and thereby in the broader region,” says Kotilaine.

Looking to the future, Bahrain is positioned for the emerging markets of Asia and Africa. “More and more of the economic growth will be coming from Africa and Asia. So the Gulf region and Bahrain within in it [will be] well positioned,” he adds.

Notwithstanding this optimism, Bahrain’s plans face risks: the uncertainty of oil prices, computer security breaches, the ever-present possibility of regional conflict, and periodic sabotage in the Persian Gulf by assailants suspected of Iranian links.

Bahrain faces ill feelings among some Arab states for its treatment of Palestinians and its rapprochement with Israel. Bahrain and some other Gulf states have forged alliances with Israel for fear of Iran and uncertainty about American willingness to come to their aid. How all of this plays out remains to be seen, as politics cannot be separated from economics.

In March, S&P Global Ratings said the Bahrain banking sector is “edging closer to pre-pandemic profitability.” Its economy should continue to recover with higher oil prices and increasing regional economic activity.

With the ravages of the Covid-19 pandemic, Côte d’Ivoire’s economic growth slowed in  2020. However, the West African nation made up for lost time in 2021, when growth accelerated to an estimated 6%, according to the International Monetary Fund (IMF), driven by recovery in exports, investment and domestic consumption.

“In 2020, we did not know the severity of the situation, even in terms of decision-making,” explains Youssouf Carius, managing director of investment manager Pulsar Partners. The IMF projects GDP growth at 6.5% in 2022 and 6.4% in 2023, if conditions normalize.

Côte d’Ivoire has a stable political and economic environment, leading to Fitch Ratings’ mid-2021 upgrade of the country’s long-term foreign currency issuer default rating from BB to B+ with a stable outlook. Fitch cites the country’s peaceful March 2021 parliamentary elections and sustained reduction of political risk. Côte d’Ivoire had two civil wars since 2002; but “the risk of an escalation of political divisions into armed conflict has materially receded over the past decade,” Fitch said.

The government’s continued fiscal measures and reforms will gradually reverse what Fitch calls “the temporary deterioration of the budget balance.” The rating agency projects strong growth after the pandemic, with “comparatively high commodity dependence.”

A large part of Côte d’Ivoire’s economic future rests on its logistics and transportation capabilities, with connections to Nigeria, Benin, Burkina Faso and other countries, says Carius: “You have the road infrastructure, but not just the road—you have the logistic capacity [that] you won’t find in other countries in the region. Senegal has far less logistics capacity.”

Côte d’Ivoire’s currency—the West African CFA franc—has stability. In addition to being the primary currency for Benin, Burkina Faso, Guinea-Bissau, Mali, Niger, Senegal and Togo as well as Cote D’Ivoire, it is also equal in value to the Central African CFA franc; and both are interchangeable with the euro. “You have the same risk as if you were investing in Europe,” Carius says. That euro peg can be an advantage or a disadvantage depending on currency fluctuations.

The US Department of Agriculture plans to invest $61 million  in the country’s cashew industry alone, and $886.2 million is to come from the IMF to lend further stability. Côte d’Ivoire exports gold, electricity and rubber, as well as cocoa and other food products.

American businesses operate successfully in oil and gas exploration and production, agriculture and value-added agribusiness processing, power generation and renewable energy, information technology services, the digital economy, banking, insurance and infrastructure.

This combination has attracted agribusiness giant Cargill; logistics companies such as DHL; banks, including Citi; online accommodations provider Airbnb; hoteliers Radisson and Novotel; and home-goods manufacturer Unilever.

However, doing business in Côte d’Ivoire comes with obstacles and hurdles. These include a government practice of awarding sole-source contracts without competition. Also, a complex tax system and slow government decision-making will challenge domestic and foreign companies. Lack of transparency in government decisions and limited access to credit further complicate the nation’s investment environment.

As Azerbaijan emerges from the Covid-19 pandemic, the South Caucasus nation confronts the more contagious Omicron variant, but has escaped the higher infection rates of its neighbors Russia, Armenia and Georgia.

“The Azerbaijani government has been reluctant to impose new restrictions, fearing additional economic consequences.” says Mario Bikarski, an analyst in the European team at the Economist Intelligence Unit.

To date, the damage has been severe. According to Fitch, Azerbaijan’s economy contracted by 4.3% in 2020. However, the rating agency estimates that the economy should grow by 2.8% in 2021 and 3.9% in 2022.

Three decades after the Soviet Union’s collapse, the economies of its former republics fall between their old command model and a more liberal market model.

In Azerbaijan, its state-owned oil company, State Oil Company of Azerbaijan (Socar), retains considerable influence in the all-important oil and gas sector, stalling migration to a full market economy, notes Bikarski.

At the same time, the government sees increased transfers from Socar as boosting financial stability. Moreover, since Socar’s break-even price of oil—the point at which the sales price matches the producer’s cost of extraction—is $76.40 per barrel, the government likely will continue to benefit from rising oil prices.

Still, Azerbaijan continues to move to a market economy as it privatizes state holdings, provides financial incentives and implements reforms, while working to attract foreign direct investment.

“In order to do that, they are trying to simplify procedures for foreign investors,” explains Bikarski. Some of the reforms include simplifying regulations and tackling tax evasion that would reduce the tax burden for legitimate, taxpaying corporations.

“That’s a big selling point for investors,” he adds. Azerbaijan is also mulling a membership in the Eurasian Economic Union free-trade bloc.

Azerbaijan has 51 bilateral investment treaties and is creating special economic zones that offer tax breaks and where it committed to spending $250 million this year. The advantages have attracted oil giant BP, consulting firms like KPMG International and software titan Microsoft.

The government is also concentrating on developing the economy of Nagorno-Karabakh, the hotly disputed territories whose de facto control was transferred to Azerbaijan following a November 2020 peace agreement brokered by Russia. However, those opportunities come with a risk. Tensions between former rivals remain high. A renewed series of skirmishes from October into December led to the reported deaths of at least eight Azerbaijani soldiers and at least 15 Armenian soldiers, more than a dozen injuries and the capture of 13 Armenians. The risk appears generally limited to border areas.

Investors may wish to consider other geopolitical developments, including Turkey’s apparent plan to extend its political and economic relationship with Azerbaijan. “Regardless of the problems with lira in the next five to six years, we will see [that] Turkey will increasingly get into Azerbaijan and the countries beyond in Central Asia,” Bikarski points out.

Covid’s toll on Peru was worsened by a shortage of medical supplies, but BBVA Research predicts its economy will have grown 12.2% in 2021.

Foreign direct investment (FDI) would make a strong pillar for continued economic recovery. It would also provide capital investment, technology transfer and government revenues, explains Raimundo Soto, associate professor of macroeconomics and econometrics at the Pontifical Catholic University of Chile in Santiago.

FDI dropped from $8.9 billion in 2019 to $3.1 billion in 2020. Hence, the government is investing in technology. Peru has 12 free trade agreements with 58 countries, most recently the United Kingdom. The country launched a tourism revival plan and boasted an inflation rate of 5.83% in the fourth quarter of 2021.

Before the pandemic, Peru had attracted companies from across the business spectrum: Spanish energy company Repsol, Canadian Bank of Nova Scotia through its subsidiary Scotiabank Peru, food manufacturer Nestle through its Nestle Peru subsidiary, car manufacturer Toyota through its Toyota del Peru subsidiary, Chilean retail conglomerate Falabella, and a range of foreign and domestic mining companies.

Unstable Politics 

Peru generally offers strong protections for contractual rights and property, yet, Soto warns, the new government’s plans for nationalization are unclear: “No one is sure if they are going to do it or not.”

With five presidents since 2016, Peru’s politics are unstable. President Pedro Castillo and his Free Peru Party narrowly won the June election with 50.13% of the popular vote, but he faces an impeachment motion, that was only temporarily overshadowed by the 7.5 magnitude earthquake on November 28. A nation divided, argues Soto, struggles to enact innovative reforms.

“The program of the new administration was based on some bold moves, one of which is nationalizing—or at least intervening heavily in—the mining sector, one of the engines of the economy,” he explains. “So there is a lot of uncertainty there.”

The government also has ideas for land reform; but actual plans are unclear, resulting in uncertainty for the agricultural sector. Overall, the political system in Peru is very fragmented, with party loyalties focused more on leaders than on ideology or policy.

The inexperience of key players is another wild card. “The people in charge are not necessarily those who are capable of understanding politics and managing the government,” says Soto. “Several ministers changed in a short period, which led to the impression that there is little coherence in plans. [Castillo] doesn’t have the machinery to put together a coherent set of measures.”

Moreover, some mining operations reportedly have threatened to close due to environmental protests and the government not extending a few licenses for similar concerns.

Such factors, taken together, perhaps recommend a wait-and-see approach for now. As Soto points out: “It doesn’t cost anything to watch and wait.”