Uneven growth, shallow integration: the case for deeper MENA cooperation

Eko Setiobudi
October 27, 2026

The war-related shock of 2026 has pushed economies across the Middle East and North Africa onto sharply different growth paths. This column argues that these short-term differences say little about long-term income convergence, but that they expose a more durable weakness: shallow regional integration. It proposes three measures to make MENA cooperation deliver tangible economic benefits.

In a nutshell

Differences in growth across MENA, wide as they are in 2026, mainly reflect a temporary conflict shock: the IMF expects sharp rebounds in 2027 for the hardest-hit Gulf economies. They are not, by themselves, evidence of long-term income divergence.

The more lasting problem is shallow integration. Intra-regional trade accounts for less than a fifth of MENA’s trade, and the region applies more restrictive non-tariff measures than any other. The agreements exist; cross-border economic activity remains limited.

Three priorities could change this: cutting non-tariff and border costs; building cross-border investment and production chains; and creating joint mechanisms to absorb common shocks, such as the 2026 disruption to Gulf shipping routes.

In 2026, the economies of the Middle East and North Africa (MENA) are moving in sharply different directions. According to the IMF’s October 2026 World Economic Outlook, the Middle East and Central Asia region is projected to contract by 0.3% in 2026, a sharp reversal from the 1.9% growth projected in April. This downgrade reflects the severe economic disruption caused by the ongoing conflict and its effects on energy production, trade, and regional economic activity.

Behind these regional averages lie sharply divergent national outcomes. Economies most exposed to prolonged disruptions to shipping through the Strait of Hormuz face severe contractions. According to the IMF’s October 2026 World Economic Outlook, Kuwait’s GDP is projected to shrink by 16.7%, Qatar’s by 15.6%, and Bahrain’s by 11.3% in 2026. Saudi Arabia is projected to contract by 3.3%, partly reflecting its ability to redirect oil exports through alternative routes, and the United Arab Emirates (UAE) by 3.9%. Meanwhile, energy-importing economies are expected to keep growing: Egypt by 5.1%, Morocco by 4.5% and Jordan by 2.7%.

It is tempting to read this dispersion as evidence that the region is pulling apart. This column argues that it is not – at least not yet – and that the more durable challenge lies elsewhere: in the shallowness of economic integration among MENA countries.

A temporary shock, not (yet) divergence

Much of the 2026 contraction reflects temporary disruption rather than a permanent loss of productive capacity. The IMF’s October 2026 World Economic Outlook projects a sharp rebound in Gulf economies in 2027, conditional on the gradual normalisation of shipping through the Strait of Hormuz. Under the IMF’s baseline scenario, the Strait is assumed to begin reopening in March 2027, with shipping conditions broadly returning to pre-war levels by October 2027. On this basis, Qatar’s economy is projected to grow by 18.8% in 2027, followed by Kuwait at 17.1%, Saudi Arabia at 7.9%, and the UAE at 7.7%. At the regional level, the Middle East and Central Asia economy is projected to rebound from a contraction of 0.3% in 2026 to growth of 6.3% in 2027. These projections should be interpreted as conditional forecasts rather than guaranteed outcomes, as the pace of recovery will depend on the restoration of energy flows, maritime transport, and regional economic activity.

Annual growth rates and income convergence are different things. Growth measures the change in output over a given period; convergence concerns whether income gaps between countries narrow over the long term. A low-income country can grow quickly for years without catching up, and a conflict-driven contraction need not change a country’s long-run position. Testing for convergence requires comparable real GDP per capita data over many years, ideally adjusted for purchasing power parity.

This column does not attempt such a test. Its argument is narrower: MENA faces uneven short-term growth and limited integration, and the second makes the region less able to share the benefits of recovery.

The shock does, however, reveal structural vulnerabilities. Heavy reliance on a single maritime chokepoint, and limited diversification of products and trade routes, explain why some economies are hit far harder than others. The partial cushion that alternative export routes have given Saudi Arabia illustrates the value of diversified regional infrastructure.

Different growth engines

MENA economies have different sources of growth and vulnerability. Morocco benefits from manufacturing, tourism, agriculture and infrastructure investment. Egypt’s growth is driven by domestic consumption, services, investment and external financing conditions. Djibouti has an advantage in maritime logistics, while Mauritania and Libya are more exposed to developments in extractive industries.

In the Gulf, Saudi Arabia is developing tourism, logistics, manufacturing and other non-oil sectors. In the UAE, non-oil activity dominates. According to the Federal Competitiveness and Statistics Centre, non-oil GDP grew by 6.8% in 2025 and, at about AED1.5 trillion, made up the large majority of real GDP of AED1.9 trillion, led by trade, financial services, construction and manufacturing. It would therefore be inaccurate to attribute the UAE’s performance mainly to oil, although hydrocarbons continue to shape export earnings, fiscal revenues and investment. The UAE’s projected economic contraction in 2026 reflects disruptions to shipping and trade as well as constraints on hydrocarbon activity. For the Gulf economies as a group, the IMF notes that non-hydrocarbon activity has been constrained by reduced trade and weaker business confidence, while the near-closure of the Strait of Hormuz has sharply curtailed oil and gas exports (IMF, 2026c).

Agreements without deep integration

MENA has several cooperation frameworks: the Gulf Cooperation Council (GCC), the Greater Arab Free Trade Area (GAFTA) and the Agadir Agreement among Egypt, Jordan, Morocco and Tunisia. They provide a foundation for trade liberalisation and coordination. But the existence of agreements does not in itself demonstrate integration – just as uneven growth does not, by itself, prove that integration is weak. The test is actual cross-border economic activity.

On that test, integration remains shallow. Writing in the IMF’s Finance & Development in September 2023, Nasser Saidi and Aathira Prasad report that intra-regional trade accounted for only 17.8% of MENA’s total trade and 18.5% of its total exports. They also find that MENA countries apply more, and more restrictive, non-tariff measures than any other region, and that these measures almost doubled between 2000 and 2020 (Saidi and Prasad, 2023). These figures predate the current conflict, but they show that tariff liberalisation under existing agreements has not removed the barriers that limit trade within the region.

Integration also depends on cross-border investment, logistics, trade in services, product standards, and customs procedures. Evidence from World Bank research highlights the scale of the challenge: estimated trade costs for industrial products within the MENA subregions reached 95% in the Maghreb, 77% in the Mashreq, and 69% within the GCC. Although these estimates are dated, they illustrate how regulatory fragmentation, transport constraints, and border procedures can undermine regional trade. Reducing these barriers through customs digitalisation, harmonised product standards, and better transport connectivity would help MENA economies deepen regional value chains and diversify trade beyond energy (Rouis and Tabor, 2013).

Three priorities for deeper cooperation

First, cut non-tariff and border costs. Governments can simplify customs procedures, digitise trade documents, harmonise selected standards, recognise each other’s conformity assessments and improve transport efficiency. These steps target the non-tariff measures that tariff cuts under GAFTA and the Agadir Agreement have left in place, and those frameworks can serve as vehicles for implementation. Progress can be tracked through border clearance times, trade costs and the growth of intra-regional non-oil trade.

Second, build cross-border investment and production chains. Partnerships could prioritise food processing, renewable energy, logistics, pharmaceuticals and manufacturing. Countries with greater financing capacity can co-finance productive projects in partner countries. This addresses a core obstacle – national markets too small to support efficient scale – and diversifies the region’s production base. Evaluation should cover private investment, local supplier participation, job creation and cross-border value added.

Third, create joint mechanisms to absorb common shocks. Cooperation on food and energy security, shared risk information, emergency logistics coordination and alternative overland and pipeline routes can reduce the impact of supply disruptions. The 2026 disruption to Gulf shipping has shown the value of such arrangements. Implementation requires a regional monitoring system and clear coordination protocols.

All three face obstacles, including differences in fiscal capacity, regulation and national interests. Transparent benefit-sharing and measurable progress indicators are therefore essential, so that cooperation does not benefit only the countries with the greatest economic capacity.

Towards regional resilience

The challenge for MENA is not to equalise growth rates across countries, but to ensure that cooperation produces tangible economic benefits. Differences in annual growth are insufficient to prove income divergence; limited integration, however, can prevent the benefits of trade, investment and recovery from spreading across borders.

The success of MENA regionalism should be judged by rising cross-border trade, productive investment and the capacity to withstand common shocks. Integration does not guarantee income convergence, but it can lay the foundations for more resilient and mutually beneficial development.

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