Dr. Chris Micklethwait
1 July 2017
Economic situation is a triggering factor for many revolutions around the world. The MENA region encountered a series of revolutions that started in 2011 and became known as the Arab Spring. Although various demands and protests shaped the revolutions in the involved countries, economy was a common cause of the protests. Considering the large area of the MENA region, its natural resources vary, and its economic activities varies as a result. However, hydrocarbon exporting rentier economies exist in most of this region’s countries, with varying quantities and extraction abilities.
The gulf cooperation council countries have a unique situation in the Middle East, the dominant attribute between these seven countries is general economic stability and luxury due to the massive monies generated from oil and gas, although some internal variation exist. Saudi Arabia, Qatar, and the United Arab Emirates, are three examples of the GCC countries that this project examines.
To understand the general aspects of the economy of Saudi Arabia, I have read a document from the U.S. Library of Congress. The document is titled, The Economy, and it provides a timeline of the oil industry in Saudi Arabia and an explanation of the strong position the kingdom has in the global oil market. Helen Chapin Metz, the author of this case study, talks about Saudi Arabia before and after oil. Before the discovery of oil in 1938, the Saudi economy was based on agriculture, trade, and religious tourism to the two Islamic holy sites, Mecca and Medina. The Saudi Arabian oil industry flourished in the aftermath of the second world war as there was a high need for the cheap Saudi Arabian oil for the European countries to rebuild their destroyed infrastructures, and the Saudi oil later became a necessity to sustain the international economic stability. The importance of the Saudi oil is easily understandable from the intervention of the U.S in the 1991 Persian Gulf war; to protect its favorite oil provider in the world. Nowadays, Saudi Arabia is one of the largest oil producing countries it has a strong influence on the international oil prices; and its current strategies to secure its economy among the Organization of the Petroleum Exporting Countries (OPEC) is expected to damage many of the smaller oil producing countries in both the short and the long run.
The end of the Oil Age article from the economist magazine talks about the predicted fate of oil, and it presents the possible global shift toward other energy sources. “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” said Sheikh Ahmed Zaki Yamani, former Saudi Arabian oil minister. The article is saying that the dependence of the Middle East on oil revenue is somehow resulting from the dependency of the world on the Middle Eastern oil. What would happen if this necessity vanished? This is the question that the economists are asking to encourage the government to take serious steps toward diversifying its revenue sources. Indeed, to protect itself against any further oil prices storm, the government has declared a developmental program called vision 2030. The vision basically explains the economic, political, and cultural reforms the authorities are considering implementing. The vision emphasis the tendency of diversifying the economy, strengthening the private sector, and encouraging the foreign direct investment by removing the current barriers they might face. A thing that I know about Saudi Arabia is its abundant mineral stocks, like gold and zinc that are being relatively ignored because they are not easy to extract. If improving the mining industry became a priority of the government, this could offer tens of thousands of jobs, and provide a new investment opportunities that should not be missed as I think.
The United Arab Emirates is another gulf country that has a very strong economy. According to Forbes lists, the UAE is ranked number 33 in the Best Countries for Business List. As of December 2016, UAE GDP is $370 B; and it has a notable growth rate of 4%. While the UAE population is 5.9 million, it only has 2.4% unemployment rate. Its open economy allowed the per capital income to reach as high as $40,400. Most significantly, 100% foreign ownership and zero taxes are allowed in the country’s free trade zones. Regarding to the recent economic situation, and in response to the recent instability of oil prices, the government has taken many successful steps to get over the crisis. For instance, there has been well done job in diversifying the economy recently; which reduced the based oil and gas GDP’s portion to 25%. Furthermore, the government is investing more in the banking sector to boost it and generate more liquidity.
Dubai is one of the most distinctive cities in the UAE, Dubai government website offers data about the socio-economic indicators of Dubai. Dubai has a strategic location which makes it the biggest re-exporting center in the Middle East. Many foreign investors are attracted to Dubai due to the liberal government policies, and the excellent infrastructure it has. Dubai is also ranked as the Arabian Gulf’s leading multi-purpose business center. Dubai is also a thrilling tourism destination. All these facts make Dubai the first international business center in the Arabian Gulf. The private sector in Dubai has improved many real estates such as hotels and recreational facilities over the past few decades. All these factors made Dubai a unique city in the heart of the Arabian Peninsula. In 2008, Dubai suffered from a financial crisis and there was a huge doubt whither it is going to overcome the problem or not due to the drastic decline of real estate prices. However, with the help of Abu Dhabi’s government and the UAE Central Bank, Dubai recovered with the least possible costs. On the other hand, the country has also reduced social spending such as minimizing fuel subsidies. Nonetheless, creating more jobs, improving the private sector, and enhancing economic diversification all have been promised by the government.
Qatar another small GCC country with a relatively strong economy, Qatar Census official website talks about the discovery of oil that dramatically changed the country toward the better. An article by Robert Fisk talks about the current crisis between Qatar and some neighboring Gulf states. It suggests some possible causes of the crises like Qatar’s continues support of terrorism. The rage on Qatar is not limited to the Gulf countries, since other countries like the Maldives and Egypt have also broken their relations with Qatar. A step that could not be understood but by the money language. For instance, the Maldives is expecting a Saudi five-year loan facility of $300m, and many other investment and benefits. An important fact to mention is that a massive US military air base exists in Qatar. Which is believed to be a guard shield for Qatar against any possible invasion from the neighboring countries, as Sheikh Hamad, the previous emir thinks. This is not the first time that the Saudi government expresses its anger from the Qatari government conduct, as there was tension in 2014 as well but it was settled at that time. However, I wonder what caused the anger to reappear again only shortly after the visit of president Trump to the 2017 Arab-Islamic summit in Riyadh. If Trump gave the green light to the Arabs to turn their faces against Qatar, how could Qatar use the existence of the U.S base on its land as a mean of protection and be confident about it? The U.S could easily move the air base to any other gulf country, so it is unrealistic to rely on the base as a protector.
Although located in the Arabian Peninsula and bordering two GCC countries, Saudi Arabia and Oman, Yemen is surprisingly not a member of the GCC. Many factors justify this isolation, but the failing economy seems to be the biggest factor as I could understand. The Yemen page on the world fact-book from The Central Intelligence Agency provides significant information about the history and the economy of Yemen. North and South Yemen were two separate countries that were not unified until 1990. However, the new Republic of Yemen encountered many secessionist movements since its establishment; and conflict existed between the government and the Huthis, a Zaydi Shia Muslim minority in the northwest. Inspired by other revolutions in the Middle East, the Yemenis decided to have their own revolution in protest of common problems like high unemployment, poor economic conditions, and corruption. Yemen is a low-income country, and the current conflict has worsened its economic situation. The GDP PPP is at $31.33 billion, while the per capital GDP is at $2,500 according to 2016 estimates. Agriculture accounts for 23.6% of the GDP and the products include fruits, vegetables, and cotton. Industry on the other hand accounts for 8.9% and the industries include crude oil production and petroleum refining. The remaining 67.5% is generated from the services sector. The Yemen’s exports were halted by the ongoing war. Inflation has accelerated and many damages occurred to the infrastructure. Currently, Yemen is in a real crisis in terms of deteriorating economy and declining water sources and food scarcity.
The latest MENA Economic Monitor Report on Yemen in Spring 2016 shows that the GDP of Yemen has contracted by approximately 28 % in 2015. The war has disrupted the economic activities and destroyed the infrastructure. The Central Bank of Yemen (CBY) faced a lot of pressures during the last few years, and is stopped many of its support activities. Currently, Yemen has the highest poverty rate in the Middle East, and about 37.3 % of the population are living below the poverty line of $2 a day. Malnutrition is also a wide spread severe problem in Yemen. During the war years, thousands were killed and millions were forced to flee the war zones, 2.5 million people are internally displaced according to 2015 estimates. The deteriorating sanitation and the unimproved water sources raised the incidences of sever epidemics like diarrhea and cholera. Humanitarian assistance is needed at all scales to help rebuilding the country and saving the survivors.
Outside the GCC countries, there are other countries that are known to have abundant reserves of oil and gas as well, such as Iraq and Iran. According to The World Bank Organization, Iran has the second largest population in the MENA region, and with a Gross Domestic Product (GDP) of US$412.2 billion, Iran is considered the second largest economy in the region. The Iranian economy is dependent on agriculture, services sector, manufacturing, and the hydrocarbon sector. Must noticeably, Iran has very large reserves of crude oil and natural gas; and the economic activity and government revenues are heavily dependent on oil revenues as a result. 20-year national vision, development plan, has been adopted by the government in 2004. The vision includes market-based reforms and consists of three main objectives; developing a resilient economy, progressing in science and technology, and promoting cultural excellence. A growth rate of 8 percent is targeted annually by the development plan. Nevertheless, the unemployment rate is 12.7 percent, which is considerably high. Poverty on the other hand has decreased from 13.1 percent to 8.1 percent between 2009 and 2013. Significantly, the removal of oil sanctions in 2016 boomed the Iranian economy and reduced the deficit. Still, the global trade relationships and foreign direct investment inflows to Iran are still restrained and preventing the country from progressing more quickly. An article by Mohammad Mostafavi-Dehzooei that was published in The Belfer Center for Science and International Affairs analyzs the economic accomplishments of the current Iranian president, Hassan Rouhani. When president Rouhani was elected in 2013, the Iranian economy was literally deteriorated especially after intensifying the international sanctions in 2011. Rouhani has fulfilled his promises and made some positive shifts to the Iranian economy, while some obstacles remained the same. He could control the inflation that was dramatically increasing during the past thirty years. He also caused the GDP to grow by 7.2% in 2016 due to re-integrating Iran with the world. However, Rouhani’s administration has not shown a real progress toward solving the unemployment problem which is one of the top concerns of the Iranians. The university graduate are increasing but no jobs are offered to them. Arguably, the oil sector demands less labor and more capital, while opening the market for foreign investment and privatization could create more jobs for locals. It is surprising for me to see a country like Iran that was one of the first countries in the world to discover oil in such economic situation. However, I liked the 20 years vision and it reminded me of the 14 year’s vision of Saudi Arabia. Both countries have enormous reserves of oil, and both are realizing how danger it is to depend solely on such unstable revenue resources. I have noticed shared objectives between the two countries like the tendency of diversifying the economy, empowering the private sector, and encouraging the foreign direct investment. Market liberals in Iran and those who care would encourage Iran to open its doors for foreigner investors and to build strong ties with the global banks; especially after removing the international sanctions from Tehran. The successfulness of the Iranian government to finally reach to a nuclear deal with the P5+1 could be regarded to the existence of some political liberalists who see the necessity to strengthening their state and know that could not be accomplished while having a deteriorating economy. Iraq also has large amounts of oil which allowed it to dominate the economy for decades. However, according to the Central Intelligence Agency, oil is also a major cause of conflict between the Iraqi Government and autonomous Kurdistan Regional Government (KRG) in Iraq’s Kurdistan region. The internal disagreement disabled many improvements plans from the two sides as the foreign energy companies hesitate to sign contracts with any of the two governments, and if they did, they tend to leave shortly after they discover the unpleasant work environment. Moreover, Foreign direct investment is believed to be among the Iraqi government objectives, however, many obstacles Impede achieving such goal such as the weak political system, corruption, and the lack of security and societal stability. Obviously, Iraq is a member of the organization of Petroleum Exporting Countries (OPEC) as one of the largest oil reserves in the world. However, looking at its poverty level would not give such indication, I think during Saddam’s era things were better economically and politically, however his tyranny destroyed the country. Nowadays, ISIS is a new actor that is seeking control over everything including oil. When trying to consider what is causing Iraq to be in such situation, I could not find any other answer that is more convincing than oil. Oil curse has an existence in Iraq with an additional dimension, it is triggering the greed of others like ISIS now and the U.S before them. I think without oil, Iraq might have been better off. According to The World Bank Organization, the global oil price shock, and the rise of ISIS are two major events that have impeded the economy in Iraq starting from 2014. Many economic consequences emerged in the same year, such us the minimized governmental spending, especially on investment projects. Approximate contraction of 8.8% happened to the non-oil sector in that year while oil continued to show a notable rise produced by the southern oil fields that were far from ISIS hands. Moreover, with the increased political instability emerged the necessity to increase security-related expenditure which worsen the situation and added up to the fiscal deficit. Poverty doubled and is estimated to have reached 41.2% as a direct result. The next few years are expected to show more positive economic trends only under two conditions, if ISIS continued to lose power and control, and if the global oil prices recovered.
Finally, Egypt is another Middle Eastern country that enjoys a big importance due to several factors. The page from the world fact-book from the Central Intelligence Agency website about Egypt suggests that Egypt has become an important world transportation center after the establishment of the Suez Canal in 1869. A strong correlation exists between Egypt population and economy, the Egyptian population is estimated to be more than 94 million, and with such high population, high possibility of economic crises arose. Population density is skyrocketing in Egypt since only 5% of the land is fertile, so people are concentrated in the narrow area along the Nile River wile vast areas of the country remain uninhabited. The limited natural resources are being exhausted by the increasing population, and issues about unemployment, housing, health care, and education exists. The per capital GDP is $12,100, agriculture counts only for 11.3% of the GDP, while industry counts for 35.8% and the remaining percentage is generated by other services. Cotton and rice are in the top exports in terms of agriculture, while tourism and textiles dominate the industrial part. Nonetheless, the unemployment is at 13.1% according to 2016 estimations. Things have become worse off after the 2011 events of the so called Arab spring that overthrown the previous government in the country. The government should intervene to find the proper solution to the problem with the less possible costs. Another fact that triggered my attention is the recent tendency of Saudi Arabia to finish many Egyptian workers’ contracts in Saudi especially after the instability of oil prices. Egyptian migrants in the Gulf countries are benefiting financially, but they are being attacked recently by the changing policies and the unstable economy of Saudi Arabia. For instance, Saudization policies are minimizing the numbers of Egyptian workers in the Saudi which would leave hundreds of thousands of Egyptians who were used to send remittance to their families back home with no job. How Sisi Could Wreck the Egyptian Economy is an article by Ari Heistein Mor Buskila compares the current government’s efforts with the previous government, and it shows that there is a general downtrend in the economy under president Abdel Fattah el-Sisi. According to the article, Egypt is facing a partially collapsing economy. Recently, to rescue the Egyptian economy, president Abdel Fattah el-Sisi has signed an agreement for a $12 billion loan from the International Monetary Fund. Fuel and food subsided is a significant tool that allow poor Egyptian citizens to afford life necessities. However, the government started reducing these subsidies day after another, which increased the public rage consequentially. Moreover, privatization is present only on promises, no effort is seen on ground. The Egyptian Armed Forces (EAF), which control about one-third of the Egyptian economy, are more concerned about controlling the economy and increasing the governmental projects. In Mubarak’s era, the role of EAFs was minimized, but it regained power after he was overthrown. Furthermore, in late 2016, the Egyptian Pound (EGP) faced devaluation caused by the military’s strategist. This effort was justified by making Egypt less costly to attract tourist and foreigner investors. However, there are no tangible results mainly because of the continuing political instability in the country. In whole, the Egyptian economy is worse off under the current government that prioritizes the EAF and shows no efficiency in dealing with the country’s economic struggles. I don’t think that the Arab Spring has brought any positive change to Egypt. The economy has collapsed, the Islamists gained more power, and the terrorist attacks increased. The fact that people should wait decades after their revolutions succeed to see tangible positive result is the only thing that gives hope in this situation.
The targeted economic developments are what ties all the above countries together. All these countries are promising to offer freer markets, and encourage privatization. Although both ideas have positive and negative sides, the positive side worth the change in my opinion. Dubai has started the initiative and it is way more developed than other cities that have the same financial abilities. The problem in the Middle East is not the lack of resources, it is the lack of efficiency in managing these resources to generate the maximum possible benefit for the people. Another common tendency we could see, is reducing the subsides in food, and energy for example, as this has happened in Egypt, Saudi Arabia, UAE, and Yemen. Instead of removing the subsidies, the authorities should consider privatization that would save large amounts of money as a logical result, because private companies are known to be more conscious about their expenditures and willing to use less foreign labor, and sometimes they are required by the government to have a specified number of local workers, which could help with the unemployment problem. Although privatization could harm some segments like the foreign labors in the GCC countries, there is a common Arabic proverb that says, “the calamities of some people, to others are blessings”. Egyptians, Yemenis, and many other Arab nationals who work in Saudi Arabia for example are facing layoffs due to many factors like privatization and the need to diversify the economy as a respond to the fluctuation of oil prices. The oil producing countries like Saudi Arabia have a larger share of employment in the oil and gas area which means having many affected employees because they are minimizing their drilling activities as a response to the declining prices and demand. Many foreign workers who were used to send remittances to their families back home are no left with no job, and their number could increase soon.
I think the event of the Arab spring were caused by the deteriorating economy and vice versa. This argument could be supported by the fact that the wealthiest countries like Saudi Arabia had not had large-scale protests. When most people are in a satisfactory economic conditions, political reforms and democracy tend to attract their attention less than those who have nothing. It is hard to argue that countries that encountered a revolution that changes the government are better or worse off. Although some incidents suggest that the dark side is greater, the good results could take hundreds of years to be attained, as the example with the famous French revolution. For instance, the Egyptian revolution gave voice to the Islamists, hampered the economy, and created many internal conflicts. However, the people should not give up their dreams and ambitions, instead they should continue asking for the initial demands that they had lost many souls for. The biggest waste is to stop in the middle of the way.
This project allowed me to examine the economy of the MENA region closely. I have gained a deep understanding of the importance of privatization and how it differs from the governmental monopoly and its bureaucrats. Some Middle Eastern countries like Egypt and Iran had experienced the idea of nationalization, and whether such practice left them better or worse of is a highly debatable question. I also admire the fact that although the so called Arab spring has not entered each and every country of the region, it has significant impact on many governments, as it encouraged them to offer development plans to absorb the potential public anger. Furthermore, it would be interesting if we could see the GCC countries finally implementing the common currency that was on the discussion table since 1982. According to On a Common Currency for the GCC Countries article by Esteban Jadresic, the common currency could bring many benefits to the members; for instance, it might make the GCC as one economic block that has its weight in the face of global economic blocs such as the European Union. It would also facilitate the movements of the people, and the circulation of goods between the countries due to the elimination of customs barriers and the encouraged intra-trade and tourism, a thing that is largely supported by market liberals in the region. On the other hand, a common currency requires giving up the country’s economic independence and make them more susceptible to shared hazards. The positive side of the unified currency seems bigger than the negative side. However, the current conflict between Qatar and the KSA, UAE, and Bahrain does not bode well.