The Economies of the Middle East
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The Economies of the Middle East
Introduction
On February 24, 2003, at the Islamic Financial Forum in Dubai, Brad Bourland, chief economist for the Saudi American Bank (SAMBA), addressed a pressing issue often ignored in Middle Eastern gatherings. Despite decades of lucrative oil revenues, the region's countries, excluding Turkey and Israel, have struggled to reform their economies and achieve prosperity.
Economic Challenges
Many Arab states are plagued by structural weaknesses, sluggish growth, high unemployment, and deteriorating government finances. Bourland pointed out that the combined gross domestic product (GDP) of all Arab countries was $540 billion, smaller than Mexico's. In 2001, the Arab League reported that its members' combined gross national product (GNP) was $712 billion, only 2% of the global GNP.
Despite a recent tripling of oil prices, growth has not kept pace with the rapidly expanding population and labor force. Official unemployment rates remain crippling, with Algeria at 26.4%, Oman at 17.2%, and Saudi Arabia at 13%. The real numbers might be higher, with significant portions of the labor force unemployed and only a fraction of Saudi women ever having worked. The region's population has nearly doubled in the last 25 years, reaching 300 million, with many being minors.
Economic Comparisons
The European Commission on the Mediterranean Region estimates that the area's purchasing power parity income per head is merely 39% of the EU's average. This includes Israel, where income per capita is 84% of the EU's, and the Palestinian Authority, where GDP drastically fell.
Faced with social unrest, Arab regimes resort to desperate measures. "Saudisation," for instance, involves expelling 3 million foreign workers to make room for locals unwilling to take on low-level jobs. The national accounts of Arab countries are struggling; prior to a recent oil price surge, Saudi Arabia had produced a budget surplus only once since 1982.
Global Integration
Arab countries are not well-integrated into the world economy. The Middle East, excluding Africa, is the least involved in globalization and technological progress. Charlene Barshefsky, former United States Trade Representative, noted that Muslim countries in the region trade less with each other than African countries, which is exacerbated by high trade barriers.
The Middle East's share of international trade and foreign direct investment (FDI) is shrinking. Major economies like Sweden attract more capital than the entire Middle Eastern Muslim world combined. Attempts at reforms have been inconsistent, with countries like Jordan and Syria privatizing state-owned enterprises, and others relying heavily on aid.
Developmental Issues
The "Arab Human Development Report 2002" by the United Nations Development Program highlights three core deficits: freedom, knowledge, and manpower. The report criticizes autocratic governance, poor education, and the exclusion of women, hindering creativity and growth.
Ali Abootalebi, a political science professor, stated that while the region has technocratic potential, entrenched elite interests prevent meaningful progress.
Impact of War
The war with Iraq was seen as a potential turning point but instead caused massive economic damage. Military buildup temporarily boosted economies like Kuwait’s, while aid flowed to Turkey, Egypt, and others. But the benefits may be fleeting, particularly with declining global crude prices impacting oil-dependent nations.
Tourism, vital for foreign exchange, suffered significantly. Egypt, heavily reliant on this sector, faced substantial economic losses during conflicts.
Economic Outlook
Saudi Arabia and Egypt each attract around $1 billion in annual FDI, but global flows have been inconsistent. Investor confidence is shaken by regional tensions and increasing xenophobia. Consumer boycotts of Western brands during 2002 exemplify the region's volatile economic environment.
Foreign enterprises play crucial roles in local economies by providing jobs, technology, and skills. However, the region's political and economic elites hinder integration into the global economy, blocking free trade, liberalization, and deregulation.
Conclusion
The Middle East's economic challenges stem from deep-rooted structural issues, rather than temporary external shocks like war. Addressing these problems requires significant reforms and openness to global economic integration.
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