GCC states need to shape up, says senior female Saudi economist

WHEN she addressed the IMD Business Forum in Dubai, two weeks ago, Nahed Taher, a senior economist at National Commercial Bank (NCB) the largest bank in Saudi Arabia, elicited a great deal of praise from her audience, which included a number of Saudi men.

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By  Massoud A. Derhally Published  April 24, 2005

WHEN she addressed the IMD Business Forum in Dubai, two weeks ago, Nahed Taher, a senior economist at National Commercial Bank (NCB) the largest bank in Saudi Arabia, elicited a great deal of praise from her audience, which included a number of Saudi men. In her speech, Taher tackled the impact of globalisation on the economies of the GCC states, highlighting the need for Gulf States to realign themselves in tandem with regional and international trends. Taher stressed the need for oil producing countries to restructure their economies by relying less on oil as a major revenue contributor to government budgets. Taher pointed out that oil revenue, which accounted on average for 80% of government revenues in 1991, accounts for an average of 78% of today’s revenues. She added that public debt, which has made up a large amount of GDP in GCC states and is lower today, still presents a number of challenges for governments. “In the past, public debt was usually considered high in relative terms to international economies. But in the last two years because of the all-time high-level prices, they are trying to apply now what is called the golden rule in economics and putting in place a strategy to reduce the public debt to lower than 40% of GDP,” explained Taher. “There is a trend showing that this public debt is going down with expenditures being now much higher in terms of capital expenditures and not current expenditures,” she added. GCC states are also characterised by a low investment to GDP ratio. Higher investment to GDP ratios is thought to lead to higher growth in economies. Taher compared the economies of the GCC states to emerging economies like China, which has close to a 40% ratio, and the numbers weren’t all that encouraging. Kuwait was well below China at 12%, Bahrain 14%, Oman 16%, Saudi Arabia 19%, the UAE 25% and Qatar 30%. The average for all the countries was 18%. “Our diversification of our economic base is not taking place, because of a low level of investment and a low level of savings as well,” explains Taher. “Most of the government and people in these countries have high consumption patterns, which is not healthy economically for developing economies that want to reach emerging or developed economy status,” she added. Even Qatar, which Taher said is doing relatively better than its peers, is far from being a model of economic success. The small emirate’s economic freedom deteriorated, falling from number 44 in the international ranking of countries in 2002 to 81 in 2004. Taher said this is because there is no clear strategy for Qatar in terms of reforms. “The deterioration of the economic freedom ratio is not healthy because of unmatched laws,” she explained. “There is a contradiction in the laws and this may hinder investment in the long term if not addressed properly,” she added. Bahrain’s international ranking of 20 placed it at the top of the Middle East ranking in terms of economic freedom, followed by the UAE (28), Kuwait (54), Oman (59) and Saudi Arabia (71). The Gulf region is also attracting little in terms of foreign direct investment, according to the IMF and the UN World Investment Report, which Taher cites. Compared with Mexico, which records 15% of gross fixed capital formation and debt burdened countries like Brazil and Argentina that record 7% and 12% respectively, the Gulf’s ability to attract foreign capital appears dismal, with Bahrain managing to attract only 2% and Oman only 4%. Taher also emphasised the need for governments to follow through on privatisation initiatives and structural reforms, which she said could help add depth to GCC market expansion. She said mergers and acquisitions are important and integral to surviving increased inter-national competition. Family and merchant businesses must consider going public said Taher, especially in the case of Saudi Arabia, which is set to join the World Trade Organisation in the coming year. The senior economist also addressed the issue of women empowerment and the positive role women can play in shaping countries. Taher’s comments, which urged the re-assessment of the role of women in the workforce, were well received by the audience. Women in Saudi, who comprise half the 25 million-strong population, are not allowed in most workplaces. The inclusion of women in various sectors of the society can help increase productivity and efficiency in the social and economic fabric of the country, argued Taher. Detractors of reform and women’s rights initiatives, largely from religious circles, have to a large extent stood in the way of change, but there is now a current swerving its way through the kingdom. Approximately 55% of the country’s graduates are female, a figure that excludes women who receive an education abroad. A compelling reason for Saudi society to bring women into the economy is the government’s expenditure on education, which accounts for 27% of the budget, 55% of which is allocated for women. By some estimates, if women were allowed to work and if doors were open to them in various fields, they could replace one quarter of some of the five to seven million foreign workers in the country in five years time, reducing remittances by US$4 billion and increasing the GDP of Saudi Arabia by 6%, according to the NCB. Although half of the potential workforce is simply static, women actually control a substantial share of the wealth in the kingdom and a good metric of that are the cash deposits in banks. Saudi women have around SR15 billion (US$4 billion) worth of deposits, about 10% of total deposits, and hold about 20% of mutual funds assets. Taher’s overall message is that countries cannot ignore the challenges before them. “Although we feel there are reforms in GCC economies and restructuring is taking place, the pace of reform is very low and this is confirmed by data. Other economies internationally are developing much faster. In relative terms we are deteriorating,” said Taher. “Optimism comes from new strategies, with new objectives put together by the government where the private sector plays a much bigger role in developing economies,” she added. In the medium to long term, GCC economies would be better off if they accelerate their reforms, said Taher. The senior economist said governments could pursue their objective to form a single GCC currency while they pursue other initiatives in parallel. However, she emphasised that governments need to consider inflation and pay close attention to government budgets. More importantly, Taher pointed out that the appreciation of the euro against the dollar by as much as 30% and the prospect of the dollar declining further over the coming two years, should lead governments in the Gulf to rethink pegging their currencies to the greenback. “At least 30% of GCC country imports come from the euro zone and the US dollar, which their currencies are pegged to and is depreciating, which means [GCC countries'] purchasing power is lower,” Taher explained. “They should consider seriously a currency pegged to a basket of currencies of their major trade partners, like Kuwait used to do in the past.”

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