ESCWA casts dim light on Arab economies

Barely a month after the Arab world was put in the spotlight by a United Nations Development Programme report on Arab human development, a survey by the UN Economic and Social Commission reaffirms that economic growth in the Arab world is way too low to make a serious dent in the unemployment figures

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By  Massoud Derhally Published  September 1, 2002

|~||~||~|Economic growth in Arab states will decline to 2 % in 2002, as a result of the escalating situation in the Palestinian territories, weakening oil prices, and global economic uncertainty, according to a recent survey conducted by the United Nations Economic and Social Commission for Western Asia (ESCWA).

The survey, which was finished in May 2002 and currently is being distributed with other regional commissions of the United Nations Economic and Social Council, casts a dim light on the economic development, current unemployment trends and population growth of the 13 Middle Eastern countries.

The survey maintains: “In 2001, economic growth in the ESCWA region was relatively meagre. Estimates indicate that the combined real gross domestic product (GDP) of ESCWA member countries, excluding Iraq, grew by 2.1%, a substantial decline from the 4.5% registered in 2000.”

The 14-page survey, which comes on the heels of an unflattering UNDP Arab Human Development Report, published July 2, 2002, says the anticipated 2% growth is a, “substantial decline given the region’s annual population growth rate of 2.4%.”

“Of the 13 countries in the ESCWA region, 10 countries produce oil, and we looked at production of oil last year and this year and we found that given that OPEC has cut the production of oil and it will be less in total this year than what it was last year, this will result in a decline in the growth of real gross domestic product (GDP),” Nazem Abdalla, chief of the economic issues and policies section at ESCWA in Beirut, Lebanon, told Arabian Business.

Real GDP of the GCC states as a group is projected to grow by only 1% in 2002, down from an estimated growth rate of 2% in 2001 and the 5.1% growth rate registered in 2000. Of the GCC States, Qatar is projected to have the highest real GDP growth in 2002, namely, 5.5%, while Kuwait is projected to register negative real GDP growth of 0.6%.
The real GDP growth rate in each GCC State is projected to be lower in 2002 than in 2001. Given that Saudi Arabia has the largest economy in the region as a whole, its projected low real GDP growth rate of 0.5% is a major factor in lowering the real GDP growth rate average for the GCC states as a group.

“We also expect that oil revenues will be coming down and this may have an adverse effect on GCC countries. Given that oil revenue is very important to the government expenditure of the GCC countries it will affect employment opportunities, economic growth, remittances back to ESCWA countries and hence also affect non-GCC countries,” Abdalla said.

According to the Economist Intelligence Unit, oil revenue constitutes 74% of the revenue of the government of Bahrain, 92% of Kuwait’s, 77% of Oman’s, 81% of Saudi Arabia’s and 76% of the UAE’s.
The decline of the US dollar versus the Euro also has a bearing on the oil producing countries of the Middle East. As oil is denominated in US dollars, the value of the petrodollar that oil-producing countries are getting back is lower in terms of the Euro, thus having a lower purchasing power, and this means that imports from Europe will be more expensive. “The depreciation of the US dollar has adverse effects on the oil exporting countries, particularly of the Gulf,” explains Abdalla.

While there is a cost element for countries that have pegged their currencies to the US dollar, the picture is mixed. “The depreciation of the dollar puts less pressure on the Egyptian pound, the Lebanese lira, and the Jordanian dinar,” says Abdalla.
The effect of September 11 have continued to drag growth in the region but mostly in more diversified countries like Egypt, Jordan and Lebanon, says Abdalla.
Unemployment also remains a problem. “Unemployment is bad because the population has been growing at very high rates for many years, and the Gulf, which has always been a fantastic valve to take the extra labour from other ESCWA members, is closing for two reasons,” Abdalla said. “One, the growth they are having now is less than what they had in the late 1970s and early 1980s and two, it is because their domestic labor force is growing at a fast rate and they are getting more educated, and actually most Gulf countries have policies to replace foreign workers and expatriates, including Arab workers, by the indigenous labour force of nationals, and hence opportunities are getting less.

Countries like Egypt and Jordan need 7% real growth per year to be able to even make a dent in the already large pool of unemployed, points out Abdalla. A forlorn hope, some might say, given that a recent article in the Al Alam Al Youm reported that the Middle East region receives only 1% of total foreign direct investment (FDI) globally. Such findings do little in serving as confidence building blocks, but they certainly reinforce the need for governments to act.

“Any growth in the region of less than 7% tells you that the problem of unemployment is still hanging around and no improvement has happened yet,” Abdalla says. “The only bright spot, as far as demography, is that Europe, in the next 10 to 15 years, will need to import labour, as they have almost a zero rate of population growth, and they need to have people to serve in place of those who retire, and that will call for an inflow of labour,” Abdalla added.

The survey concludes with 12 recommendations for the 13 countries of the ESCWA region, including: less dependence on oil with more reliance on gas, expediting structural reform, accelerating privatisation, enhancing efficiency in the public sector, promotion of regional economic cooperation and integration, improvement of education systems, repatriation of private sector capital overseas, adoption of special monetary and fiscal measures, promoting intraregional tourism, promotion and attraction of FDI and evaluating the advantages and disadvantages of pegging the national currencies to the US dollar. Massoud A. Derhally

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