Economic divide among Arabs

A combination of sound economic policies and record high oil revenues, has led to an economic boom throughout the GCC region since 2002. While the latest statistics show that other Arab countries are also enjoying higher economic growth rates in comparison to 1990s, the pace of economic growth in GCC is stronger than the rest of the Arab world.

Several indicators of economic growth and development show a wide gap between GCC and other Arab countries. Furthermore this gap appears to have widened in recent years. Total population of GCC countries was approximately 37 million in 2006, which was roughly 12 per cent of the Arab population of Middle East and North Africa. However, the economy of GCC countries in 2006 accounted for more than 55 per cent of the Arab world's $1.25 trillion economy.

The recent economic boom in GCC has also increased the per capital income gap between GCC and the rest of the Arab world. In 1995 the GCC countries had an average per capita income of $8500, which was 7.3 times larger than the per capital income of the remaining Arab countries. In 2006 the GCC per capita income rose to $19300, which was 10.4 times larger than the average for other Arab countries. Indeed the per capita income in some GCC countries such as Qatar ($63,000) and the UAE ($38,000) were higher than many advanced Industrial countries in 2006. Even after we adjust the incomes for inflation, the inflation-adjusted per capita income of GCC countries was 8.9 times larger than other Arab countries.

Human development

The advancement of GCC countries, however, is not limited to income and wealth accumulation. These countries have also made considerable progress in the area of human development. By spending a portion of their oil incomes on health, education and infrastructure, the GCC countries have been able to increase their level of human development consistently over the past decade.

The 2005 Human Development Index (HDI), which is reported annually by the UN, shows that Kuwait, Bahrain, Qatar, the UAE and Oman achieved the five highest scores among Middle Eastern countries, while Saudi Arabia stood at seventh place, after Libya.

The average HDI score of GCC countries in 2005 was 0.83 (on a scale of 0 to 1). In comparison, the average score for nine other Arab countries (Egypt, Libya, Lebanon, Jordan, Tunisia, Palestine, Algeria, Syria and Morocco) was 0.73. Based on these scores we notice that the human development gap between GCC and other Arab countries is not as wide as their income gap.

Another development criteria for which we observe a gap between GCC and other Arab countries is governance. The analysis of public governance sheds light on the quality of government services and political institutions that affect the business community. Ever since 1996, the World Bank has released annual data on several governance indicators for a large number of countries based on six parameters: voice and accountability; political stability; government effectiveness; regulatory quality; rule of law; and costs of corruption.

Comparing the performance of the GCC and other Arab states based on World Bank's governance indicators for 2005, we observe that, on average, GCC countries achieved higher scores in all parameters. Further, the gap between governance scores of GCC and other Arab countries is noticeable for five of these six parameters.

The only parameter for which GCC and rest of the Arab world have similar scores is Voice and Accountability. This parameter measures the spread of democracy and political freedom and the data shows no significant difference between GCC and other Arab countries.

The high quality of governance in GCC countries has led to a sharp increase in foreign investment inflows. The share of GCC in total inflow of foreign investment into the Arab world has also increased.

As the GCC countries continue to grow they should be mindful of the economic conditions in other Arab countries. Stability of GCC is closely linked to the stability and prosperity of other Arab nations. The economic boom of GCC countries has had a positive effect on rest of the Arab world. The population of Arab workers in the Gulf has sharply increased in the past five years and these workers are sending home a substantial amount of remittances.

The GCC governments should also encourage their investment communities to increase their investments in other Arab countries, which show a strong commitment to economic reform.

- The writer is the Henry J Leir Chair in Economics of the Middle East at Brandeis University's Crown Centre for Middle East Studies.