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Crunch time looms for Middle East economy

While there are many positives, turmoil in Libya, Iraq and Syria could undo gains, heighten unemployment and fuel illegal migration

Image Credit: Asghar Khan/Gulf News
Despite the regional turmoil brought by the Arab Spring, Gulf countries managed to attrack massive investments, especially in the non-oil sectors.
Gulf News

The series of recent events in some Arab countries have constituted an economic shock, apart from being a political jolt that has undermined many local and regional alliances.

This has exaggerated the political, economic and social impact in countries such as Egypt, Tunisia, Libya, Yemen and Syria, while casting a long shadow on economic conditions in others.

Where political repercussions have been totally negative, the economic impact has varied between totally negative in those countries bore that the brunt of it, to between positive and negative in the rest of the region, including the Gulf Cooperation Council (GCC).

Countries which witnessed the upheavals have seen economic deterioration, suspension of effective manufacturing sectors and a significant drop in growth rates, an outflow of domestic and foreign capital and brain drain. They have also been roiled by high unemployment, leading to low standards of living for millions of people and further fuelling the turmoil.

If the consequences are clear in these countries, the impact on others, including Gulf states, need an economic analysis — especially the indirect outcomes. The positive factors are represented in the increase in oil prices since the beginning of the events in 2011, and especially after the significant decline in Libyan exports.

Other Arab countries, especially the Gulf, managed to attract massive capital which contributed to the revitalisation of many non-oil economic sectors, particularly real estate and capital markets.

The positives also include the accelerated growth of the tourism and aviation sectors, which achieved record performance in the last two years as visitors looked for options other than Egypt, Tunisia and Syria.

As a result, the GCC strengthened its position as a global hub for investment in all its forms, including financial and banking, because GCC nations enjoy stability while providing quality services and sophisticated infrastructure.

On the other side, there are definitely negatives stemming from the $30 billion (Dh110.19 billion) in aid packages that Arab countries announced to help provide food and meet the needs of refugees.

This cost the Gulf countries substantial sums that could have been utilised in the implementation of development projects in those countries under normal conditions.

Furthermore, the assets and earnings of Gulf companies have fallen in the affected countries, resulting from sabotage or disruption of economic activities.

Commodity prices have increased, especially agricultural, as the affected Arab countries used to supply Gulf markets with vegetables, fruits and food products. The events have significantly harmed inter-Arab economic cooperation, such as joint ventures and initiatives such as the Arab free trade zone.

The economic future of Arab countries witnessing the turmoil seems very uncertain, as divisions — notably in Libya, Iraq and Syria — will lead to further economic deterioration. These will have serious political and economic implications on the region as a whole, deepen the unemployment crisis and lead to illegal migration and refugee flows.

The positives would emerge from finding a solution to the crisis in Syria through the Geneva 2 peace conference, scheduled for January.

Another is the nuclear agreement struck with Iran — a move that would pave the way for restoring stability in the Middle East.

The reconstruction process will be costly, but its outcome will be positive.

Success of any of the two possibilities will depend on several considerations, as there are more regional and international parties, which are directly involved in this game of special interests, bargaining and blackmailing. These results will determine the pace of future development in the region in the coming years.