Middle Eastern economies must accept that low oil prices are not a cyclical dip but the result of structural changes in the global economy, Dr Nasser Saidi said.
Saeedi, former Lebanon Minister of Economy and Industry (and former Chief Economist at Dubai International Finance Centre), spoke to Gulf News on Monday after his keynote address at Thomson Reuters’ 150th Middle East anniversary conference at DIFC.
“There is something deep on the structural side,” he said. “People tend to think it’s just a cycle and somehow there’s going to be a recovery, and that if oil stocks in the United States go down oil prices will start picking up and Opec will be able to control these prices.
“I think no, we’ve had a structural shift, both in terms of the energy mix and in terms of the dynamics. And technological change is not going to be reversed, so we’re going to be able to extract shale much more cheaply.”
He added, “Renewable energy — solar, wind — is now highly competitive with fossil fuels. It’s cleaner for the environment; everybody is committed to a cleaner environment, and the implication then is unless you start thinking of doing something differently and more intelligently with your fossil fuel ... it will be a stranded asset.”
Earlier, during his presentation, he said there was no doubt the Gulf Cooperation Council (GCC) would continue to be the primary growth driver the Middle East and North African (Mena) economy — it currently engaged in 75 per cent of the region’s trade — but that growth outlooks were lower than the period before the global financial crisis. He predicted growth or around 0.9 per cent for Saudi Arabia next year, and around 2 per cent for the UAE.
The last 10 years had seen the world’s economic centre of gravity move towards Asia, and it was China that would dominate the future, he said, pointing out that the G7 nations’ contribution to global GDP had fallen from 39 per cent in 2006 to 31 per cent in 2016, while Asia’s contributions had risen from 21 per cent to 32 per cent over the same period.
“By 2025 it is clear that the centre of global economic geography is very much in Asia,” he said. “What we’ve been living in over the past two decades is a very big shift in the political, economic, and financial geography.”
Those changes would have important ramifications for GCC economies, he said. In particular, nations should consider their currency dollar pegs, which currently bound their monetary policies to those of the US Federal Reserve.
“This is not what the countries of the region need,” he said. “If anything, they need lower interest rates.”
He warned the Middle East could face a $1.2 trillion bill to reconstruct Syria, Yemen and Iraq, and said it was the only region that lacked a reconstruction and development bank — a need he said should be rectified.
Economic diversification was now a necessity for GCC economies, he said, and those nations that had not already begun the process would be forced to do so.
“Not only do you need to think of accelerating diversification, but you need to start thinking about what it is you will export to the rest of the world,” he said. “At the moment 85 per cent of your exports [in the GCC] are oil, gas and energy related.”
The GCC still had reserves to invest, and could invest them not just in Mena but in sub-Saharan Africa and Asia as well, areas that required capital.
“The question is how to diversify in production, in trade and get new sources of revenue for governments. I think that is the big challenge.”