Prospects for the GCC economies beyond 2009
* Middle East: Monday, December 14 - 2009 at 12:43
The GCC is need of a gigantic reconstruction after the fallout of the financial crisis. This will leave a number of previous economic pillars behind, but it also offers chances for a more sustainable growth than before.
Imagine, 2010 is just around the corner, and nobody really takes any notice of it. Once described as the threshold to a high-tech and prosperous future, the coming 12 months look more like an ongoing repair session for the global economy.
"The West account for two thirds of the world economy, which is $61 trillion in size", writes Gerard Lyons, Chief Economist at Standard Chartered Bank in London in the "2010: The Year ahead"-report. "If the West does not boom, the world will not boom. And the West is not going to boom in 2010."
This is why any projection for the countries of the Gulf Cooperation Council (GCC) must be examined carefully. From an analyst's perspective, the GCC has rarely faced a year-end with a bigger question mark than now.
In the light of the Dubai World debt crisis, a sober analysis of the status quo and any potential recovery is even harder to do. In its regional economic outlook from October 2009, the IMF raised its growth forecast for all six GCC member states. "We clearly have to wait and see how the negotiations in relation to the debt restructuring will develop", Dr. Heiko Hesse, Economist Middle East and Central Asia Department at the IMF told AMEinfo.com.
His view must be seen as representative, as most economists and analysts are rather hesitant to judge the impact of the Dubai World debt case on the GCC economy. Most local and foreign banks even issued an embargo on statements related to Dubai World and the ongoing restructuring debate.
Continued stimulus packages
Taking in account the measures which have been launched so far against the effects of the financial crisis, however, there is a broad consensus that the GCC economies will continue to struggle with it in 2010. It is true that GCC powerhouse Saudi Arabia is not as affected by the crisis as the UAE and Dubai in particular are.
Its $127bn fiscal stimulus programme in 2009 saved the country from a hard fall. This triggered Standard and Poor's to affirm KSA's rating of 'AA-/A-1 +' with a stable outlook. New regulatory initiatives to liberalise the insurance industry and the real estate sector were also launched. "in KSA, we expect GDP growth to reach 3.0% in 2010, following a 1.0% contraction in 2009", says Shady Shaher, Economist MENA at Standard Chartered Bank in Dubai.
That is why Adnan Yusif, CEO of Islamic bank Al Baraka, thinks that stimulus packages have to continue. Yusif, who also heads the Union of Arab Banks, told AMEinfo.com "that more capital injections are needed until mid-2010, otherwise the green shots of recovery in 2009 will remain a one-time effect."
Diversification is the key for sustainable growth
Regardless of the uncertainty related to the Dubai World case, other figures are based on facts. The drop in oil prices had a deep impact on the financial capabilities of the GCC. According the IMF's Regional Economic Outlook Middle East and Central Asia from October 2009, the decline in oil prices, combined with an expansionary fiscal stance, is leading to a substantial drop in current account surpluses for the region's oil exporters from $280bn in 2008 to around $50bn.
"Therefore it is time for the GCC and the entire Mena region to develop a debt market", says Dr. Nasser Saidi, Chief Economist at of the DIFC Authority. According to the IMF Global Financial Stability Report from April 2009, debt securities form just three per cent of the Mena capital markets compared to 42% in global capital markets. The DIFC aims to lead the creation of the GCC common debt market.
Other means of buffering the downturn are not ripe as yet. It is true that tremendous effort for diversification has been made. Beside the biggest free port (Jebel Ali) and financial centre (DIFC) in the region, Dubai is also home to free zones for health care, biotechnology and chip producers, among others. So why did this strategy not pay off during the crisis, one might ask.
Simply because these zones launched a couple of years ago and it can take three to five years until residing firms, such as Amgen, Merck Serono or Hitachi, have recruited the best staff and can generate profits. Dr. Heiko Hesse: "We believe, that all GCC states should go ahead with their diversification strategies. Investments in construction, infrastructure and education should pay off from 2010 and after".
Some 60% of the GCC's 38 million people are under 30. The attraction of leading universities such as Harvard Medical School and London Business School (both in Dubai) or the recent creation of the Saudi Arabia-based King Abdulla University for Science and Technology (KAUST) in Riyadh show that governments are paving the way for a knowledge economy. Education will be the biggest trend in the coming years as "oil alone does not create jobs at first", as Sheikha Lubna Bint Khaled Al-Quasimi, UAE minister for foreign trade, puts it.
Focus on transparency
The fall of the Saad and Algosaibi finance houses, however, gave proof that free zones are not enough in order to attract foreign direct investments. The region's need for corporate governance and transparency has never been bigger. One of the very publicly listed firms which discloses the salaries and bonuses of its management is the multi-products-conglomerate Savola Group from Saudi Arabia.
The drums of the crisis, however, have overshadowed the successes which were achieved during the first decade of the new millennium. With Emirates Airlines and the Al-Maktoum International Airport, Dubai has laid the cornerstones for rebounding once the world economy picks up. Other projects such as the King Abdullah Economic City near Jeddah, the New Doha International Airport (NDIA) or Kuwait's container port on Boubyan island offer further proof that all GCC countries are putting in place foundations for non-oil reliant economies.
* Middle East: Monday, December 14 - 2009 at 12:43
The GCC is need of a gigantic reconstruction after the fallout of the financial crisis. This will leave a number of previous economic pillars behind, but it also offers chances for a more sustainable growth than before.
Imagine, 2010 is just around the corner, and nobody really takes any notice of it. Once described as the threshold to a high-tech and prosperous future, the coming 12 months look more like an ongoing repair session for the global economy.
"The West account for two thirds of the world economy, which is $61 trillion in size", writes Gerard Lyons, Chief Economist at Standard Chartered Bank in London in the "2010: The Year ahead"-report. "If the West does not boom, the world will not boom. And the West is not going to boom in 2010."
This is why any projection for the countries of the Gulf Cooperation Council (GCC) must be examined carefully. From an analyst's perspective, the GCC has rarely faced a year-end with a bigger question mark than now.
In the light of the Dubai World debt crisis, a sober analysis of the status quo and any potential recovery is even harder to do. In its regional economic outlook from October 2009, the IMF raised its growth forecast for all six GCC member states. "We clearly have to wait and see how the negotiations in relation to the debt restructuring will develop", Dr. Heiko Hesse, Economist Middle East and Central Asia Department at the IMF told AMEinfo.com.
His view must be seen as representative, as most economists and analysts are rather hesitant to judge the impact of the Dubai World debt case on the GCC economy. Most local and foreign banks even issued an embargo on statements related to Dubai World and the ongoing restructuring debate.
Continued stimulus packages
Taking in account the measures which have been launched so far against the effects of the financial crisis, however, there is a broad consensus that the GCC economies will continue to struggle with it in 2010. It is true that GCC powerhouse Saudi Arabia is not as affected by the crisis as the UAE and Dubai in particular are.
Its $127bn fiscal stimulus programme in 2009 saved the country from a hard fall. This triggered Standard and Poor's to affirm KSA's rating of 'AA-/A-1 +' with a stable outlook. New regulatory initiatives to liberalise the insurance industry and the real estate sector were also launched. "in KSA, we expect GDP growth to reach 3.0% in 2010, following a 1.0% contraction in 2009", says Shady Shaher, Economist MENA at Standard Chartered Bank in Dubai.
That is why Adnan Yusif, CEO of Islamic bank Al Baraka, thinks that stimulus packages have to continue. Yusif, who also heads the Union of Arab Banks, told AMEinfo.com "that more capital injections are needed until mid-2010, otherwise the green shots of recovery in 2009 will remain a one-time effect."
Diversification is the key for sustainable growth
Regardless of the uncertainty related to the Dubai World case, other figures are based on facts. The drop in oil prices had a deep impact on the financial capabilities of the GCC. According the IMF's Regional Economic Outlook Middle East and Central Asia from October 2009, the decline in oil prices, combined with an expansionary fiscal stance, is leading to a substantial drop in current account surpluses for the region's oil exporters from $280bn in 2008 to around $50bn.
"Therefore it is time for the GCC and the entire Mena region to develop a debt market", says Dr. Nasser Saidi, Chief Economist at of the DIFC Authority. According to the IMF Global Financial Stability Report from April 2009, debt securities form just three per cent of the Mena capital markets compared to 42% in global capital markets. The DIFC aims to lead the creation of the GCC common debt market.
Other means of buffering the downturn are not ripe as yet. It is true that tremendous effort for diversification has been made. Beside the biggest free port (Jebel Ali) and financial centre (DIFC) in the region, Dubai is also home to free zones for health care, biotechnology and chip producers, among others. So why did this strategy not pay off during the crisis, one might ask.
Simply because these zones launched a couple of years ago and it can take three to five years until residing firms, such as Amgen, Merck Serono or Hitachi, have recruited the best staff and can generate profits. Dr. Heiko Hesse: "We believe, that all GCC states should go ahead with their diversification strategies. Investments in construction, infrastructure and education should pay off from 2010 and after".
Some 60% of the GCC's 38 million people are under 30. The attraction of leading universities such as Harvard Medical School and London Business School (both in Dubai) or the recent creation of the Saudi Arabia-based King Abdulla University for Science and Technology (KAUST) in Riyadh show that governments are paving the way for a knowledge economy. Education will be the biggest trend in the coming years as "oil alone does not create jobs at first", as Sheikha Lubna Bint Khaled Al-Quasimi, UAE minister for foreign trade, puts it.
Focus on transparency
The fall of the Saad and Algosaibi finance houses, however, gave proof that free zones are not enough in order to attract foreign direct investments. The region's need for corporate governance and transparency has never been bigger. One of the very publicly listed firms which discloses the salaries and bonuses of its management is the multi-products-conglomerate Savola Group from Saudi Arabia.
The drums of the crisis, however, have overshadowed the successes which were achieved during the first decade of the new millennium. With Emirates Airlines and the Al-Maktoum International Airport, Dubai has laid the cornerstones for rebounding once the world economy picks up. Other projects such as the King Abdullah Economic City near Jeddah, the New Doha International Airport (NDIA) or Kuwait's container port on Boubyan island offer further proof that all GCC countries are putting in place foundations for non-oil reliant economies.