Gulf Cooperation Council (GCC) states are earning an additional $246 million a day as a result of higher oil prices, compared with February 2002. According to Chief Economist at Riyadh's Saudi American Bank (Samba), Brad Bourland, higher oil prices, currently $36.61 compared to $20.24 a year ago, are driving strong liquidity growth in GCC states for the second year running.
Bourland told delegates attending the International Islamic Finance Forum in Dubai that Forecasts produced by the bank show that GCC states' gross domestic product (GDP)s will grow by an average of 3.6 percent in 2003, compared with 2.2 percent in 2002. The United Arab Emirates (UAE) and Bahrain will lead the way with GDP growth of 4.5 percent, followed by Qatar, four percent, Saudi Arabia, 3.9 percent, Oman three percent and Kuwait two percent.
Bourland warned, however, that key vulnerabilities persist in GCC economies hindering fiscal development. “Liquidity growth and low interest rates mask the structural weaknesses that are chronic in Arab world economies, which are still growing slower than their populations and labor forces. In addition governments rarely exercise strong fiscal discipline, resulting in worsening government finances,” he added.
According to figures collated by Samba, only Bahrain's GDP grew faster than the size of its workforce in 2002. In Kuwait and Oman workforce growth exceeded GDP by 0.4 percent; in the UAE by 1.5 percent; in Saudi Arabia by 4.2 percent and Qatar by 5.1 percent.
In addition, Bourland said, five of the six GCC governments ran a fiscal deficit, as a percentage of GDP in 2002. Only Qatar recorded a surplus of 1.2 percent, according to Samba's figures. Elsewhere Kuwait's deficit was –8.8 percent; Saudi Arabia's –three percent; UAE's –1.5 percent; Oman's -0.7 percent and Bahrain's –0.5 percent.
“Because GCC economies are not performing to their full potential, the result is high and rising unemployment rates,” Bourland said. Samba figures show that the UAE has the lowest unemployment rate in the GCC, at 2.6 percent of working-age population. Elsewhere in the region the jobless percentage is: Oman, 17.2 percent; Saudi Arabia, 13 percent; Kuwait, 7.1 percent; Qatar 5.1 percent and Bahrain, 3.1 percent.
“The prime concern is of a potential employment crisis in the years ahead because the oil boom, starting in 1973, has created a baby boom, at a time when death rates in the region have fallen substantially,” said Bourland.
“In Saudi Arabia, although there is almost full employment in the 30 years plus age group, the challenge is coming down the road because the economy is not creating enough jobs, for the millions of males aged 0-19 years,” added Bourland.
“This kind of youth bulge profile is common throughout the Arab world and is very worrisome, given that Arab economies are not growing fast enough to accommodate current new entrants to the labor market.”
Bourland said that although the replacement of expatriate workers by nationals provides some relief it is not a cure for growing unemployment. “If you replace an expatriate with a national you are simply swapping one worker for another. You are not creating new jobs. In addition, many low wage, unskilled jobs are not attractive to nationals. There is a danger that a well intentioned policy, if not properly structured, could destroy more jobs than it creates, by introducing rigidity into the labor market.”
Organized by IIR, the International Islamic Finance Forum, that concluded on February 25, was attended by over 300 delegates from 25 countries, spanning North America, Europe and the Middle and Far East. It addressed key challenges faced by the Islamic finance sector, worth $230 billion and predicted to maintain double digit growth for the next 15-20 years. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
