But while the Gulf’s economic hyperactivity marks a remarkable contrast to the gloom in western capitals, where bankers and governments have been reeling from the credit crunch and bracing for recession, the oil boom is proving a challenge to manage, its trickle-down effect to the bulk of the population difficult to engineer.
The Gulf is awash with liquidity as oil money accumulates in government coffers. Nominal gross domestic product has doubled to $900bn (€576bn, £454bn) since 2003, according to the Institute of International Finance, and is set to grow by 14 per cent this year…But the upbeat mood has been marred by soaring inflation, which independent analysts estimate at 15 per cent in the United Arab Emirates and as much as 20 per cent in Qatar. Across the Gulf, both nationals and expatriates are complaining as rents climb and food prices surge. The pressure comes two years after many Gulf nationals were devastated by the collapse of stock markets, as state attempts to distribute oil wealth through initial public offerings turned sour.
Nor is it clear that the boom is creating sufficient employment for Gulf nationals, given the construction sector’s near total reliance on cheap foreign labour and the dire state of the region’s education systems. This may be less pressing a concern in countries with small national populations but it is putting governments in populous states such as
under political pressure. “The corporate sector is making money but the man in the street does not feel better off; maybe some people feel even worse off,” says Anais Faraj, executive director at Nomura Investment Banking in Bahrain... Saudi Arabia
“The big beneficiaries of this boom are the companies but most employ non-locals, and at a certain level, the low-paid-level people, like secretaries, are hurting a lot,” argues Khalifa Jassim al-Thani, head of the chamber of commerce in
. “Over the past four years, prices of real estate have gone up four to five times.” Doha
Companies also are starting to feel the squeeze, as wage bills and raw material costs are pushed up. An
business confidence survey published this month found that 65 per cent of respondents remained optimistic about growth in their operations. But the proportion of businesses claiming a negative impact from inflation rose from 36 per cent in February 2007 to 61 per cent in the first quarter of this year. HSBC Gulf
“The wealth is going into the pockets of individuals,” says Keith Bradley, head of commercial banking for HSBC in
. “But individuals are having to spend a lot more. There are winners and losers…” Dubai
Perceptions of the economic surge’s wider impact are harsher than the reality, officials insist. “Did people benefit? Yes, how many have millions in the bank now? Salaries went up by 40 per cent two years ago,” says Yousef Hussein Kamal,
’s finance minister. “But if you have 30 per cent [nominal] growth, you’ll face inflation.” Qatar
Omar bin Sulaiman, governor of the Dubai International Financial Centre, says inflation should be kept in perspective. “The growth that has taken place here is unprecedented anywhere – and it’s across all levels of industries,” he says. “So when people talk about inflation, yes it’s there. But when you measure the real inflation and the net of it – let’s take salaries – the increase in salaries is sometimes 40-50 per cent and the inflation you’re talking about is 11 per cent, 12 per cent in certain areas. The net of that is not bad.”
Mr Bradley of HSBC says consumer spending in the region has started growing faster than inflation, evidence that the benefits are being spread around. His bank also estimates that there were 15,000-18,000 businesses created in the UAE last year, in construction-related sectors, services and healthcare.
But the extent to which this is creating new employment for the middle class of nationals and expatriates is difficult to gauge, given the lack of accurate official statistics. There are indications that in
, where the jobless rate is estimated at about 12 per cent, unemployment may be rising… Saudi Arabia
“There is trickle-down effect but a good question is whether it is happening at the rate, or in a fashion, that is satisfactory,” says Abdulmohsin bin Abdulaziz al-Akkas, Saudi minister of social affairs.
or elsewhere in the Gulf, the distortions in the job market will take a generation to fix. As governments try to shrink their public sectors, they have yet to reform their education systems to produce graduates suited for the private sector. Saudi Arabia
“Unemployment has a lot to do with the skills mismatch as well and everyone recognises that,” says Mohsin Khan, head of
Middle Eastat the International Monetary Fund. “The nationals of these countries will never be doing the jobs of the unskilled workers they have to import from South Asia. What you need is to upgrade the skills of the Saudis and Emiratis in order to have them compete with the professional foreign expatriate.”
Hussain al-Nowais, member of the Abu Dhabi Economic Council, says much of the government effort is now geared towards creating employment. While the state is kick-starting big industrial enterprises, a new fund in the UAE capital has been set up to help create small and medium-sized companies, assisting them with free loans and ideas. “We are doing everything with that [trickle-down] in mind,” he says…
Among the main victims of the monetary policy, however, have been Asian construction workers whose home currencies have been appreciating against the dollar.
“The cost of living increased here, so people have less savings and, with the decline of the dollar, they have to spend more money to remit money to
. And in India , there is more demand for more money, because of the increase in cost of living there,” says K.V. Shamsudheen, the UAE-based chairman of Pravasi Bandhu Welfare Trust, which looks after Indian expatriates. India
In countries beleaguered by social problems, such as
Saudi Arabiaand , a widening of the gap between rich and poor could breed more resentment of the regimes, particularly when perceptions abound that the politically connected are gaining the biggest contracts. “The top 5 per cent of society is gaining more and more and the others are getting nothing at all,” says Mohammad Fahad al-Qahtani, an assistant professor of economics at the Institute of diplomatic studies in Bahrain . Riyadh
In smaller states with predominantly expatriate populations – the UAE and
, for example – the risk is different. Experts say that unless governments devise a comprehensive economic and monetary policy, inflation could become a real threat to the economic expansion. Qatar
“I suggest someone comes up with a well-thought-out monetary and economic policy that is not reactive,” says Mr Makhoul of Morgan Stanley. If inflation keeps rising, he adds, “the accountants, the human resources people, the receptionists, those who work in shops may find it better to go home ... If you start alienating people like that, you can’t have a growing economy.”
♠ Posted by Emmanuel in Middle East at 4/29/2008 12:41:00 AMOne of the neat things about being the leader of one of the world's many authoritarian regimes is that you don't need to compile statistics that make you look bad if you don't want to. Today's case in point are the Gulf states with regard to indicators of equality. You can almost hear them say, "take your Gini coefficient and shove it." None of them disclose anything remotely resembling inequality data, whether based on income or expenditures. For all we know, these may be among the most unequal of states or the least unequal of states, though we cannot really be sure. Much ink has been spilled on the difficulties faced in these countries as inflation mounts in the face of their reluctance to drop pegs to the US dollar. However, it is unknown how the citizens of these countries are faring. The Financial Times provides some anecdotal insights here on inequality in the Middle East. It is admittedly an incomplete picture without large-scale survey data, but it's better than nothing, I guess: