Turning shocks into catalysts: Mohamed Abu Basha on MENA’s resilient growth, diversification drive, and the region’s shift toward global trade
The Middle East and North Africa face a pivotal moment as IMF projections point to a modest regional expansion, yet policymakers and investors are aiming to turn macro headwinds into opportunities. A nuanced view from Mohamed Abu Basha of EFG Hermes emphasizes that the region’s resilience rests on strong domestic demand, accelerated diversification, and the growth of local capital markets. While global uncertainties linger, the Gulf economies are leveraging shocks to reinforce fiscal buffers, deepen financial depth, and broaden the spectrum of growth drivers—from consumer sectors to renewable energy and tourism. Kuwait’s evolving reform trajectory also appears as a significant regional hotspot, signaling broader reform momentum beyond the more widely discussed UAE and Saudi Arabia. Against this backdrop, free trade agreements emerge as crucial tools to sustain outward-looking growth, attract foreign capital, and facilitate technology transfer. The following sections unpack these themes in depth, exploring how the region’s macro outlook translates into policy choices, sectoral opportunities, and investment strategies.
Global shocks reframing regional opportunity: resilience, diversification, and the path to deeper capital markets
The IMF’s revision of the MENA growth forecast to about 2.6 percent sits within a larger tableau of global uncertainty, yet the interpretation of this outlook depends heavily on perspective. According to Abu Basha, the region, particularly the Gulf, has effectively transformed shocks into catalysts for policy reform and structural adjustment. The sequence of global disruptions over the past few years—most notably the Covid-19 pandemic, the Russia-Ukraine crisis, Brexit’s earlier impact, and more recently regional instability—has created a pattern in which Middle Eastern economies have repositioned themselves as beneficiaries of a volatile global environment. This is not simply luck; it reflects deliberate strategies to strengthen domestic demand, reduce reliance on external cycles, and cultivate a more diversified growth model.
A central pillar of this resilience is the emphasis on homegrown, domestic demand-driven growth. By prioritizing consumption, services, local industries, and investment within their borders, Gulf economies have dampened the direct exposure to swings in global demand for oil and gas, while still capitalizing on energy-related revenues. In practice, this means confident household consumption, greater investment in non-oil sectors, and a broader base for economic activity that isn’t tethered solely to commodity prices. The expansion of domestic demand also supports a more stable macro environment, enabling policymakers to deploy countercyclical measures when needed without triggering unsustainable imbalances.
However, the evolving outlook does not overlook potential headwinds. A decline in oil prices is a genuine concern for sentiment and growth, particularly if it coincides with a slowdown in China—a major trading partner and, increasingly, an influencer of energy demand. The region’s sensitivity to global commodity cycles remains, but the comparative advantage lies in the Gulf’s capacity to absorb such shocks due to resilient balance sheets and high domestic demand. In this context, the presence of robust financial buffers across many economies provides a cushion against short-term downturns, reducing the need for drastic fiscal contraction during softer periods.
One of the most salient implications of the current environment is the renewed emphasis on diversification as a strategic imperative. Abu Basha underscores that the region cannot rely indefinitely on oil wealth or oil-related revenue streams. Instead, diversification—across sectors, geographies, and financial channels—becomes essential to sustaining growth over the medium to long term. This diversification is reflected in actively supported capital markets development, which helps channel savings into productive investments and reduces funding gaps for new sectors. A visible manifestation of this trend is the strong pipeline of initial public offerings (IPOs), indicating sustained investor demand and a robust appetite for risk capital in a region seeking to deepen its financial depth.
Governments across the Gulf are concurrently working to expand both local and international debt markets to meet long-term financing needs. The development of domestic debt instruments, alongside more sophisticated financing tools and market infrastructures, is designed to broaden the financing toolkit available to private and public sectors. This financial deepening supports large-scale infrastructure projects, represents a flexible source of capital for diversification initiatives, and fosters a more dynamic environment for corporate financing. Abu Basha’s perspective highlights a practical path: by cultivating a broad-based debt market and encouraging a vibrant equity market, Gulf economies can mobilize the capital required for ambitious diversification programs without over-relying on oil-driven fiscal cycles.
In sum, the regional stance toward global uncertainty is not passive. It is characterized by strategic adaptation—maintaining resilience in the face of shocks while accelerating diversification and financial deepening. The IMF forecast acts as a signal rather than a constraint: it indicates a tempered growth path, but one that the region can navigate with careful policy design, prudent risk management, and a continued push toward broader, domestically fueled growth. The result is a more resilient macro framework capable of supporting structural reforms, increased productivity, and a more diversified set of growth engines beyond hydrocarbons.
Monetary policy, inflation dynamics, and the peg-driven environment in the Gulf
A central feature shaping regional monetary policy is the currency peg to the US dollar, which anchors monetary conditions in most Gulf economies. Abu Basha explains that in this environment, regional monetary policy largely tracks the Federal Reserve’s actions. Consequently, any forthcoming Fed rate cuts would be felt positively across the Gulf, particularly as they would help offset the drag from lower oil prices by reducing borrowing costs for the private sector. This linkage to U.S. monetary policy creates a predictable, albeit externally influenced, monetary backdrop that supports business planning and investment decisions in the region.
Yet there is a caveat worth monitoring: the potential weakness of the US dollar. If the dollar softens, imported inflation could re-emerge as a risk, especially in sectors heavily dependent on imports from Europe, where currency dynamics could shift as the euro strengthens. Abu Basha suggests that while inflation is expected to remain modest overall, vigilance is warranted in import-heavy sectors where price transmission could be amplified by exchange-rate movements. The possibility of modest inflation, offset by occasional upticks in specific segments, underscores the importance of targeted macroprudential measures and supply-side stabilization to mitigate import-related price pressures.
A nuanced picture emerges when considering inflation outside the property sector. Abu Basha anticipates that inflation should remain manageable, rounded by general macro-stability and moderate demand pressures. The rent component within the property sector is highlighted as a distinct area where growth reflects underlying demand dynamics rather than purely monetary factors. Rent inflation can be a barometer of economic activity and household balance sheets, implying that even when headline inflation cools, housing costs can still reflect a broader trend of economic growth and demand-side pressures. Consequently, the overall inflation narrative is stable, with occasional sector-specific divergences that policy teams must monitor and, if necessary, adjust via targeted tools or regulatory measures.
The broader macro outlook points toward a trend of modest, controlled inflation, punctuated by a more pronounced effect in housing markets. With a softer global environment, the expectation is for gradual monetary easing, potentially in the form of rate cuts from the Fed, which would have a favorable ripple effect on Gulf borrowing costs and project financing. Yet this easing path is not uniform across all sectors; it requires careful calibration to ensure that monetary policy remains aligned with domestic stability, exchange-rate dynamics, and the ongoing need to support diversification-related investments.
Taken together, the monetary policy environment in the Gulf is characterized by a pragmatic alignment with the U.S. framework, a careful watch on currency-related inflation risks, and a recognition that inflationary pressures will likely ease gradually outside housing. The forecast for a calmer inflation horizon, combined with potential Fed easing, suggests an attractive financing environment for private sector activity, capital-intensive projects, and diversification initiatives. Policymakers are urged to balance the benefits of external rate support with the need to safeguard price stability and prevent overheating in target sectors. In this sense, the monetary policy outlook serves as a supportive backdrop for growth-oriented reforms, capital market deepening, and the continued expansion of non-oil activity.
Kuwait and the broader Gulf spotlight: reforms, opportunities, and evolving sectors
While the UAE and Saudi Arabia have dominated conversations about Gulf reform and diversification, Abu Basha draws attention to Kuwait as an emerging country to watch within the region’s broader reform narrative. The Kuwaiti reform path has gained momentum, with positive signals from last year’s long-awaited approval of the public debt law. This legislative milestone is a meaningful step toward enabling more robust fiscal management, debt issuance flexibility, and longer-term funding strategies to support diversification ambitions. The public debt framework is foundational for broader policy experimentation and market development, allowing Kuwait to mobilize additional financing for strategic investments while maintaining fiscal discipline.
Beyond the debt framework, Kuwait has signaled intent to advance other reforms, including a mortgage law and accompanying fiscal measures. The mortgage law would represent a critical step in expanding the housing finance market, improving credit access for households, and supporting the growth of related real estate activities. Fiscal measures linked to housing finance would help align macro policies with the evolving housing sector dynamics, facilitating a more stable environment for homeowners and investors alike. Such reforms are seen as signals of a more comprehensive approach to modernization, enhancing the capacity of Kuwait to participate more actively in regional growth dynamics.
In terms of sectoral diversification, the Kuwaiti story is aligning with broader regional trends. While government spending has historically driven growth in certain sectors such as real estate and financial services, the current narrative emphasizes broader diversification. The consumer sector, the full energy value chain (including renewables, utilities, and downstream activities), and non-bank financial institutions are gaining prominence as growth engines. These shifts reflect a deliberate move away from the concentration of economic activity in a narrow set of sectors toward a more balanced, multi-faceted economy.
Tourism and hospitality emerge as additional bright spots within Kuwait’s evolving market landscape. The region has demonstrated a track record of resilience and opportunity in tourism, particularly in the UAE and Saudi Arabia, and Kuwait is now showing early signs of engagement in these areas. The expansion of tourism and hospitality contributes to a more diverse service sector and provides employment opportunities, while also reinforcing the links between domestic demand and external visitor flows. These developments hold potential for import substitution, service exports, and the formation of new value chains across the region.
Overall, Kuwait’s reform momentum complements the broader Gulf reform trajectory. While the UAE and Saudi Arabia attract significant attention due to their scale and reform depth, Kuwait’s progress in debt management, housing finance, and strategic diversification signals a broader regional trend toward more resilient economies with more expansive growth potential. The Kuwaiti case demonstrates that the diversification imperative is not exclusive to the largest economies; rather, it is a shared regional objective—one that offers opportunities across sectors, markets, and value chains. As such, Kuwait warrants ongoing monitoring as policymakers, investors, and regional observers evaluate how its reform measures unfold and how they interact with neighboring markets’ dynamics.
Sectoral diversification: consumer growth, energy value chain expansion, and hospitality momentum
The Gulf region’s diversification story has matured beyond the early dominance of government-driven spending and real estate. A more nuanced sectoral canvas is emerging, with attention to consumer demand, energy value chain expansion, and the growth of non-bank financial institutions. The consumer sector is increasingly central to growth as household incomes rise, urbanization accelerates, and digital consumption deepens. Retail, e-commerce, and services are expanding, supported by demographic trends such as youthful populations and rising middle-class households. This shift underscores a broader consumption-led growth model that complements traditional energy revenues, creating a more balanced and resilient macro profile.
In the energy value chain, the focus extends beyond extraction to encompass renewables, utilities, and downstream activities. Investments are being channeled into renewable energy projects, storage solutions, grid modernization, and efficient energy distribution. These efforts are designed to reduce the region’s exposure to fossil-fuel price volatility while building a sustainable platform for long-term growth. The downstream segment—encompassing refining, petrochemicals, and integrated energy services—continues to contribute to export potential but is increasingly supplemented by clean energy initiatives, industrial diversification, and technology-enabled efficiency gains. Collectively, these movements enhance the region’s energy security, create high-value job opportunities, and open pathways for foreign technology transfer and collaboration.
The role of non-bank financial institutions is also rising in significance. As banks face higher capital requirements and a more complex risk landscape, non-bank entities—such as specialized lenders, asset managers, and fintech platforms—offer alternate financing channels, expand credit access to underserved segments, and support the growth of new sectors. A diversified financial architecture is crucial to sustaining growth in consumer, industrial, and services sectors, while also providing channels for household savings and corporate investment. This broader financial ecosystem supports a more resilient and inclusive economy, enabling smaller firms and startups to secure the funding necessary to scale and innovate.
Tourism and hospitality have long been powerful growth drivers in the UAE and Saudi Arabia, and the momentum is now extending to Kuwait and other Gulf economies. The hospitality sector’s expansion is linked to an improving travel environment, strong branding efforts, and policy support that prioritizes tourism as a strategic growth vector. This sector’s expansion yields multiple benefits: it creates direct employment, generates broad-based service demand, stimulates local procurement, and fosters knowledge transfer through international visitation and investment. A thriving tourism sector also catalyzes related industries, such as entertainment, cultural sectors, and retail, reinforcing the region’s broader diversification aims and enriching its economic tapestry.
In sum, sectoral diversification in the Gulf is transitioning from a reliance on government-driven programs to a broader, market-driven growth model anchored in consumer strength, a robust energy value chain, and a fast-expanding hospitality ecosystem. The integration of these sectors with capital markets, financial services, and technology-enabled platforms creates a more dynamic and interconnected economy. This diversification trajectory is not only about reducing risk but also about unlocking a wider array of growth opportunities for both domestic actors and international investors. As more markets adopt similar diversification strategies, the region’s overall competitiveness improves, attracting higher levels of investment, talent, and innovation.
Free trade agreements and regional integration: unlocking investment, technology, and global reach
In an era of global economic recalibration, free trade agreements (FTAs) and regional trade partnerships are perceived as essential levers for sustaining outward-looking growth. Abu Basha emphasizes that such accords are particularly important for the Gulf, given the dual dynamic of exporting capital from oil revenues while importing capital, technology, and know-how to support diversification. The GCC economies’ outward orientation remains a defining feature, and FTAs help institutionalize and accelerate this posture by reducing transaction costs, easing regulatory frictions, and expanding market access for goods, services, and investments.
Among the most significant developments is the potential GCC-UK FTA, which, once signed, could act as a catalyst for enhanced investment flows and technology transfer. This agreement would align regulatory frameworks, create predictable rules of engagement for multinational firms, and facilitate more robust cross-border collaborations in areas such as finance, energy technology, and advanced manufacturing. The broader implication is that FTAs can help accelerate economic diversification by creating stable, rules-based corridors for investment, reducing the risk premium associated with long-term projects, and enabling greater strategic alignment with key international partners.
Beyond the GCC-UK partnership, the region is pursuing stronger ties with Asia—especially India and China—alongside enduring relationships with the United States and Europe. These connections support diversified trade routes and investment channels, ensuring the Gulf economies remain integrated in a multipolar global economy. The emphasis on broader regional integration helps to stabilize supply chains and enhance the flow of technology and capital necessary for diversification. FTAs and trade agreements also enable technology transfer, knowledge sharing, and the dissemination of best practices across sectors, from manufacturing to digital services and financial services. In addition, such agreements contribute to a more predictable business environment, which is crucial for long-horizon projects and capital-intensive investments.
In short, FTAs are central to maintaining the Gulf’s competitive edge in a global context that is increasingly characterized by de-globalization concerns and a push toward regional resilience. They support the region’s strategic aim of becoming a hub for capital, innovation, and knowledge, thereby attracting more foreign direct investment and enabling local firms to upgrade their capabilities. The net effect is a more globally integrated, forward-looking economy that remains adaptable to global economic shifts while leveraging the GCC’s abundant capital and strategic location. The synergy between trade openness and diversification enhances the region’s capacity to absorb external shocks, expand high-value industries, and sustain long-term growth trajectories.
Policy, investment, and reform: navigating a high-potential but complex landscape
A recurring theme across Abu Basha’s analysis is the critical interplay between policy design, market development, and private-sector performance. For policymakers, the key takeaway is the necessity of sustaining momentum in diversification and capital-market deepening. This includes continuing to build out debt markets, develop mortgage and housing finance frameworks, and align fiscal policy with long-run growth objectives. The Kuwaiti reforms, including the public debt law and anticipated mortgage legislation, exemplify how targeted policy measures can catalyze broader financial market development while simultaneously expanding access to capital for households and firms. The aim is to craft a policy mix that supports prudent debt issuance, sustainable public finances, and a flexible financing environment to support infrastructure and diversification initiatives.
From an investment perspective, the optimal strategy centers on exploiting the region’s growing financial depth and expanding sectoral breadth. IPOs remain a barometer of market confidence and a sign that the region’s equity markets are maturing, offering opportunities across consumer, energy, and technology-enabled enterprises. Investors should look for companies with clear growth trajectories, strong governance, and defensible competitive advantages, particularly in sectors linked to the energy transition and consumer services. Access to finance through diversified debt markets also presents opportunities for project financing, infrastructure development, and long-term strategic investments in non-oil sectors. Sound risk management practices, including currency exposure assessment given the USD peg, will be essential for ensuring sustainable returns in a volatile global framework.
Sustainability and data-driven policymaking must also be central to this agenda. The region’s ability to translate macro forecasts into concrete policy actions will depend on robust statistical capabilities, transparent governance, and adherence to best practices in corporate and public sector management. Policy reforms should align with international standards while preserving local realities, enabling a balanced ecosystem that fosters investment, innovation, and inclusive growth. The goal is not merely to weather global headwinds but to convert them into accelerators for productivity, job creation, and long-term economic resilience.
The investment landscape in the Gulf is at a turning point, offering substantial opportunities but requiring disciplined execution. As governments pursue diversification and market depth, investors must evaluate sectoral potential, regulatory risk, and the longer-term macro trajectory. Practical steps include identifying sectors with clear tailwinds—such as consumer services, renewables, and tourism—while prioritizing governance standards, financial transparency, and sustainable business models. Consumers, workers, and businesses alike stand to benefit from a more dynamic market economy that integrates deeper capital markets with real-economy growth.
Tourism, hospitality, and the broader social dimension of diversification
The momentum in tourism and hospitality is expanding beyond the traditional strongholds of the UAE and Saudi Arabia, moving toward broader regional adoption, including Kuwait and other Gulf economies. Tourism has emerged as a powerful driver of growth, employment, and cultural exchange, contributing to economic diversification by creating spillover effects in related sectors such as retail, entertainment, and hospitality services. The rebound in global travel demand, coupled with targeted infrastructure development, branding efforts, and policy support, has reinforced the region’s appeal as a destination for both leisure and business travel. The expansion of tourism also fosters a more vibrant social and cultural landscape, improving the region’s attractiveness to international visitors, investors, and talent.
Hospitality remains a cornerstone of this regional trend, with new hotel openings, resort developments, and service-oriented offerings supporting a broader hospitality ecosystem. The sector provides direct employment, stimulates local procurement, and encourages cross-border investment in entertainment, gastronomy, and experiences that reflect the region’s growing cosmopolitanism. The hospitality expansion charts a path toward deeper regional integration, as more visitors traverse Gulf cities, create demand for interconnected travel experiences, and encourage knowledge-transfer through international brands and operators.
The tourism sector’s growth, in turn, strengthens domestic demand and helps diversify the revenue base away from oil dependence. It also promotes the development of human capital in service-oriented industries, encouraging skill enhancement and professional development. This, in turn, supports a broader labor market that can absorb a wider range of roles—from hospitality management to logistics and event planning. The cumulative effect is a more resilient and inclusive growth model that broadens economic participation and improves the overall quality of life for residents and visitors alike.
Kuwait’s early moves in tourism, while more nascent than those of the UAE or Saudi Arabia, reflect a similar strategic aim: to unlock new sources of growth without compromising fiscal or social stability. As the country advances in its diversification agenda, the tourism and hospitality segments could become anchors for regional travel networks, supporting cross-country collaborations, shared investments, and joint ventures that harness the Gulf’s geographic proximity and cultural affinity. The result is a more interconnected Gulf region where tourism serves as both a growth engine and a platform for regional collaboration, talent development, and cross-border investment.
The macro implications for policy and the investment playbook
Taken together, the IMF’s modest growth projection, the region’s resilience to shocks, and the ongoing diversification program imply a nuanced policy and investment playbook. Policymakers must sustain their reform momentum, ensuring that fiscal and monetary policies are aligned with the broader diversification objectives while maintaining macro stability. This includes deepening financial markets, expanding access to credit, advancing housing finance, and continuing to modernize regulatory frameworks to attract and protect investment. An emphasis on risk management, governance, and transparency will further reduce frictions for both domestic and international investors, supporting a more attractive investment climate.
For investors, the opportunity set is expanding rapidly beyond traditional oil-linked plays. The IPO pipeline demonstrates strong market interest in a diverse set of sectors, while the ongoing development of debt markets provides various financing avenues for large-scale projects, including those tied to the energy transition and urban development. Investors should consider a balanced approach that leverages the region’s strong domestic demand, strategic location, and sectoral breadth. This means prioritizing firms with solid governance, scalable business models, and exposure to structural growth drivers such as consumer demand, renewable energy, tourism, and technology-enabled services. Weighing currency exposure and hedging considerations remains essential given the peg to the U.S. dollar, but the overall financing environment is expected to stay supportive as inflation remains contained and interest rates trend toward normalization.
Long-run policy coherence is paramount. As free trade agreements come into sharper focus, the alignment of local regulations with partner jurisdictions will be critical for realizing the full potential of outward-looking growth. This includes maintaining transparent procurement processes, ensuring reliable dispute resolution, and fostering a conducive environment for knowledge transfer and technology adoption. The region’s success will hinge on the strength of its institutions, the depth of its capital markets, and its ability to translate favorable macro dynamics into concrete projects that create jobs, spur innovation, and sustain inclusive growth.
Conclusion
The MENA region faces a calibrated growth path shaped by global uncertainty, domestic ambition, and a deliberate push toward deeper economic diversification. The IMF’s 2.6 percent growth projection does not signal weakness but rather highlights the region’s ability to adapt and seize opportunities amid volatility. A central message from Mohamed Abu Basha is that resilience comes from a combination of strong domestic demand, diversified growth engines, and a well-developed financial system capable of funding long-term reforms. Kuwait’s reform trajectory adds a critical dimension to the broader Gulf story, signaling that diversification and modernized financial markets are moving beyond a two-country narrative toward a more inclusive regional evolution.
Monetary policy dynamics, anchored by the US dollar peg, provide stability while also requiring vigilance regarding potential import-driven inflation and housing-market dynamics. The prospect of Fed rate cuts could relieve financing costs, supporting growth without compromising price stability. Inflation is expected to stay modest outside the property sector, but the region must monitor exchange-rate movements and their implications for import prices. This nuanced outlook supports a favorable financing environment for investment in infrastructure, technology, and services that underpin diversification.
Kuwait, with the public debt framework and forthcoming mortgage reforms, emerges as a notable signal of broader reform momentum across the Gulf. The sectoral diversification underway—spanning consumer markets, the energy value chain, renewables, utilities, and non-bank financial institutions—coupled with a rising tourism footprint, reshapes the Gulf’s growth dynamics. Free trade agreements, particularly the GCC-UK pact and strengthened Asia-US-Europe links, are set to accelerate investment, technology transfer, and cross-border collaboration, reinforcing the region’s status as a globally integrated, growth-oriented hub.
For policymakers, the imperative is to maintain policy coherence that sustains diversification, deepens capital markets, and supports long-term fiscal strength. For investors, the opportunity lies in identifying sectors with sustainable demand and high-growth potential, leveraging IPOs and debt markets, and managing currency-related risks effectively. The combined effect of these dynamics is a Gulf region that is more resilient, more interconnected with the global economy, and better positioned to convert external shocks into enduring growth, job creation, and broader prosperity. The path ahead is challenging, but it is also full of strategic opportunity for those with a clear understanding of the macro context, sectoral fundamentals, and the evolving policy landscape.