Business | Markets
Arab economies ill-prepared for global shocks
Like anyone invested in global financial markets, Arab sovereign funds, investment banks and rich individuals are taking a severe beating.
- Agencies
- Published: 00:27 October 10, 2008
Beirut: Like anyone invested in global financial markets, Arab sovereign funds, investment banks and rich individuals are taking a severe beating.
Also getting queasy are those who have poured money into real estate ventures in boom towns like Dubai or Doha, or the frothy housing markets of Amman, Damascus and Beirut that have been fuel-led by remittances and investments from the Gulf.
"People who have money in the Middle East are deeply plugged into the global financial system. They have nowhere else to go," argued Rami Khouri, a Beirut-based Middle East commentator.
"We are getting a double whammy - the direct impact of the global financial crisis and the cumulative backlash of our own mediocre public policies in the last 40 years."
Change in fortunes
Middle East stock markets, at first shielded by the region's vast oil money inflows, saw panic selling this week amid fears that a five-year Gulf property boom was over and developers would have to merge as financing conditions worsened.
Kuwait slashed its benchmark discount rate by 125 basis point to 4.50 per cent from 5.75 on Wednesday to shore up its economy, putting pressure on other Gulf banks to follow suit.
A plunge in world oil prices to around $89.27 a barrel from a record $147 in July has provided another sharp reminder of the vulnerability of many Arab economies to global shocks - even those where free-market policies have made only slow inroads.
"The Arab region is not yet fully globalised. It represents no more than 2.5 per cent of the world economy, from which it is still disconnected, except for oil," said Louis Hobeika, an economics professor at Lebanon's Notre Dame University.
That disconnect might provide some protection from global upheaval, he added. "However, during a period of recovery, we lose a lot because we don't grow with the rest of the world."
In Egypt, the world crisis should make free-market reforms like privatisation all the more urgent, said Angus Blair, head of research at investment bank Beltone Financial in Cairo.
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