How Will Brexit Impact MENA Countries?

10/07/2016 09:10 AST

The consequences of the UK's leave vote on 23rd June have far reaching consequences that go well beyond Europe and the UK itself. The outcome of the referendum took the global financial markets by surprise as a remain vote appears to have been expected. $2.1 trillion of value was lost from the markets as the pound dropped from its high of GBP/USD 1.50 to the lowest point in 30 years, a dramatic fall of 13%, closing in at 1.37.

Despite these dramatic events, the MENA countries found that their markets remained virtually unscathed, with the exception of the UAE markets where Abu Dhabi lost 1.8% and Dubai's index lost 3.3%, mostly because of the country's hospitality and real estate driven economy which took a hit as the pound fell in value against the Durham. As the pound continues to depreciate, the impact upon the AED real estate market and tourism industry is likely to become felt as fewer UK tourists can afford to invest in property and travel.

What is Brexit's Impact on the MENA Countries' Economy?

Britain's departure from the EU has fuelled uncertainty that is sure to impact on global economic growth through the delay of capital expenditure due to falling consumer confidence. The good news for the MENA countries is that their major export, oil, is unlikely to take much impact as the UK only consumes around 1.6% of total global consumption and is right down at number 15 on the list of global consumers (although there may be a more severe impact in this area if the financial uncertainty spreads to the rest of the EU). Imports from the UK into MENA countries are likely to become cheaper as a result of the strengthening of the US dollar and therefore popular imports such as luxury vehicles from British manufacturers will almost certainly drop in price. Overall, the impact of Brexit is likely to be positive for the MENA countries as the uncertainty in the markets is likely to boost global growth, especially in the United States with the possible result of the U.S Fed delaying an increase in their interest rates. This will enable MENA economies to revive following the impact of falling oiling prices. It is even possible that there could be further positivity for MENA economies through possible forging of trading agreements with the newly independent UK. As ongoing negotiations for more than 25 years have failed to reach a settlement over free trade with the EU, the MENA region may well be able to forge bilateral trade deals with the UK who will be keen to sustain their exports.

What is the Effect of Brexit on MENA Countries Investments?

The general opinion of forex trading brokers in MENA countries is that the region is likely to be fairly well protected from the turmoil in the markets caused by Brexit for the present time, and is only likely to be affected if the situation turns into a global crisis. As trade links between MENA countries and the UK are fairly small, with Qatar (the largest exporter to the UK) only exporting a total of 1.6% of its GDP to the UK. Also, as the exit process is likely to be long and drawn out, taking at least two years to come to fruition, it is likely that any long term risk is destined to be contained within the UK and possibly the wider Euro area without spreading to the Middle East economies. However, investors are warned that if the financial markets are affected worldwide through impact on trade, the MENA countries may experience some element of risk.

Press Release