Consequences of the world financial crisis on the Middle East
All the countries in the world have been affected by the financial crisis, the numerous recoveries plans going from the United States to Europa are now well known and are up to billions of dollars. The American President Obama is multiplying decisions to put back on track the US economy in injecting billions of dollars in different project. Europe is also trying to straighten its economy through different measures, but without resorting to protectionism. What about the Middle East? The financial crisis has also damaged the region in different ways, from socio economics to humanitarian consequences, as well as in a freeze in investments and business transactions.
Firstly, in the Gulf region, the various countries have been affected terribly by the financial crisis because of their important integration in world economy and the drop in oil prices. The United States is a major trade partner to all Gulf countries, and it is the main destination for investments and capital from both individuals and governments in the region. Therefore, in light of such a strong connection, it is understandable why the current financial crisis has affected so deeply the region. Saudi Arabia has announced in October 2008 a governmental plan to spend 10 billion Riyals ($2.67 billion) in social grants to low-income families(1). The country has also provided 40 billions of dollars to support national banks during the crisis. At the same time, the Kuwaiti government moved to prop up the Gulf Bank – the second largest commercial bank in the country – after losing up to 200 million Kuwaiti Dinars ($744 million) (2). The United Arab Emirates is also very affected by the crisis, they declared in October measures guarantying the totality of deposits and of savings in national banks, as well as inter banking transactions (3). The government of Dubai has announced the emissions of Treasury Bonds for an amount of 20 billions of Dollars to settle its debts. The Emirate of Dubai heavily got into debt to finance its development, actually the public debt of the government raise up to 10 billion of dollars, while the companies it controls reach 70 billions of dollars(4) . Real Estate projects worth 582 billions of dollars are freeze in the United Arab Emirates because of the crisis, which represent 45% of the total projects (5). In October 2008 Qatar launched a 5.3 billion dollar plan to purchase up to 20% of participation in banks traded in the Doha stock exchanges (6).
We can observe this reality with the last survey made in the Emirates, where 46% of expatriates, from all nationalities, want to leave the country because of the world economic crisis that affects the second Arab economy(7) .
The decline in oil price has slowed down the numerous huge projects in the Gulf region. Oil exports constitute a big percentage of the GNPs of Gulf countries, and they are one of the major sources of their national income. The oil sector in this part of the world is considered the main engine of economic growth; therefore, what worries the Gulf countries the most is the possibility of the world sliding into the depths of a recession as a result of the current crisis. As oil revenues fall, government spending decreased, which in turn stop or slow down the huge infrastructure projects in the Gulf region. It is important to note that in Saudi Arabia – the world’s largest oil exporter, 89 percent of government revenues come from oil exports(8).
The prospects of monetary integration between the Arab Gulf countries have been, according to some observers, because of the current situation jeopardized. “The current turbulences in financial markets will hinder the monetary unity in the Gulf region because of the growing expectations of increasing inflation rates,” said Saud Gelaydan, a Saudi economic analyst(9).
In June 2008, central bankers in the region agreed on taking the first steps towards creating a joint central bank, setting 2010 as a target date for launching a common currency.
The stock markets of the region have followed the same bearish tendency observed in other emerging markets, while international and national investors were withdrawing capital from these countries. The Egyptian stock market has fell of 54%, while the Gulf Cooperation Council markets displayed a global decrease of 50% (10) . The GDP of the region should regress, passing from 5,8% in 2008 to 3.9% in 2009 (11).
We have essentially seen the financial and economic consequences of the world crisis in the Gulf region, but countries such as Syria, Lebanon and Palestine are also suffering.
The Syrian economy will have a year 2009 “very difficult” according to the Syrian Minister of Finance (12) . He declared that the world crisis combined to the drought that is affecting the country for the third year in a row is worrying him in relation to Syrian economy prospects (13). The Minister also referred to other risky elements such as the decrease of transfer from Syrian expatriates, the fall of the oil price which will increase the public deficit, the decline in foreign investisments and of tourism, especially from the Gulf region (14).
Lebanon has not been affected severely by the world crisis, but its citizens all over the Gulf region have on the opposite suffered a lot from it. Numerous regional layoffs have encouraged Lebanese to come back to their country. Around 15 000 to 26 000 Lebanese have already lost their employment in the Gulf, the majority of them worked in the building, finance and tourism sector (15). Half of them have not returned yet because they are still looking for a work in the region in another city or are ready to accept a salary less important. Around 4000 have already returned to Lebanon and the number of expatriates seeking for a job in the country is increasing. This phenomenon should benefit the local economy, even though the consequences on the short term are not necessarily positives. Actually the return of the expatriates should create a pressure to decrease salaries during the first months, and few employees might also be substituted by others, considered more qualified and experimented, which would contribute to increase the unemployment rate on a local plan . On the other hand, the know-how of these Lebanese from the Gulf could help support the growth on the middle term, in boosting the productivity of the national economy.
Even Palestine might be hit by this world crisis, according to Dr Fadl Naqib from the Palestine Economic Policy Research Institute. Firstly Palestinian banks place between 40-60% of their capital in foreign investments, these investments amount to some 250 million dollars annually, if the financial crisis continues, some of these investments might not return or will be lost completely, placing the economy of the West Bank under great pressure (16). Secondly, the Palestinian economy is dependent on Foreign Aid and periods of financial recession usually have a knock-on effect on disbursement.
In conclusion we have seen through this article the consequences of the world crisis on certain areas of the Middle East. The Gulf countries have entered a severe financial crisis which affects the other countries in the region. The economic globalization can not isolate a region from the rest of the world as we have observed during this world crisis where no country is left out. The different governments have therefore the obligation to settle an agreement on rights and duties to help these companies and persons who lost enormously through this crisis. By doing so they would preserve social peace in the country, which is the basis of a stable society.
1)Hassan Abdu, Reeling Economy of the Gulf , 2008 October
2)Hassan Abdu, Reeling Economy of the Gulf , 2008 October
3)World Bank, Perspectives pour l’économie mondiale Moyen-Orient et Afrique du Nord 2009
4)Orient le Jour, 25th February 2008
5)Orient le Jour, 25th February 2008
6)World Bank, Perspectives pour l’économie mondiale Moyen-Orient et Afrique du Nord 2009
7)société d’études des marchés par Internet, YouGov
8)Hassan Abdu, Reeling Economy of the Gulf , 2008 October
9)Hassan Abdu, Reeling Economy of the Gulf , 2008 October
10)World Bank, Perspectives pour l’économie mondiale Moyen-Orient et Afrique du Nord 2009
11)World Bank, Perspectives pour l’économie mondiale Moyen-Orient et Afrique du Nord 2009
12)Yazigi Jihad, Orient le Jour,
13)Orient Le jour, 25th February 2009
14)Orient Le jour, 25th February 2009
15)Orient Le jour, 25th February 2009
16)Palestine Monitor , Financial crisis can have severe consequences for Westbankers, 25 October 2008