DUBAI — The Gulf and Arabian Peninsula attract attention often for the fast pace of their physical development, with the striking new commercial and government complexes appearing in the skylines of Dubai, Abu Dhabi, Doha, Kuwait, Manama and other Gulf cities. Yet something more intriguing and politically significant than spectacular architecture is taking place in the Gulf these days, and its impact is being felt around the region.
Dubai is the most extreme example of this hyper-growth Gulf-wide phenomenon. Its rabid pace of growth is expected to continue for another decade or more, bringing Dubai’s population of 1.4 million to over 5 million. More significant is the spillover of this phenomenon to other parts of the Arab world. The Arab Gulf’s public sector surplus income is finally filtering through to spur substantial private sector investments that are being channeled by Arab financial services firms into investments throughout the region. For the first time in many decades, significant new job creation is being generated mainly by the Arab private sector, rather than by governments, and unemployment rates are declining.
A generation ago in the 1973-85 first oil boom, most of the oil income was intermediated by Western banks and finance companies, the bulk went into building essential domestic infrastructure (roads, air and sea ports, power and telecommunications systems, housing, health care, schools), and the surpluses were mostly invested abroad. During the current high income cycle, the Gulf region is accumulating hundreds of billions of dollars that cannot be quickly spent by governments or invested at home by the private sector. The United States and Europe are less attractive investment destinations in the post-9/11 world of sanctions and financial embargoes, so more investments flow to Arab projects.
The recent increase in oil income, according to World Bank and Swiss bank executives who study the issue, has seen the Gulf countries, along with China and India, experience the fastest collective economic growth rate in the world, averaging 5-6 percent annually in the past five years. During that period, GNP for the Gulf region doubled, from $600 billion to $1.2 trillion. An estimated $700-800 billion will be accumulated in surplus income during this boom, and much of this is already being deployed within the Arab world.
Signs of this abound throughout the region, mainly in the form of intra-Arab advertising for real estate, telecommunications, tourism and financial services investments. Billboards on the highways to Amman, Cairo, Beirut, Doha and Dubai airports have a peculiarly similar look to them these days, as private Arab funds and sound investments seek each other out throughout the region. This suggests that the current boom may be sustainable, even when oil income declines, if today’s surplus funds are managed wisely and invested in sectors that have good long-term growth prospects.
The best sign of improving prospects for the Middle East region is that the education sector is experiencing a real increase in spending. This is a welcomed indication of future growth prospects in a global economy increasingly focused on knowledge and information industries. Jobs are being created at a faster pace than the new entrants into the labor force, which is driving down unemployment in the Middle East and North Africa region for the first time in 20 years or so. Unemployment has dropped from 14 to 11 percent in the past few years, the World Bank estimates.
Most new jobs are low-quality and low-productivity ones, to be sure. But combined with improved education standards, stronger links between the education and labor sectors, and more private sector training opportunities, new jobs now being created can set the stage for a shift into high-income, high-quality jobs, such as Ireland and Singapore have created for their citizens in recent decades.
The current oil boom has triggered two novel and important trends in the Arab world: accelerated intra-Arab private sector investments within the region, and governments that do not try to monopolize the economy but instead give their private sectors the opportunity to generate new investments, jobs and income. This can set the stage for the emergence of a strong, wide and deep middle class of citizens who have a vested interest in stability, security and prosperity. This contrasts sharply with the current majority of Arabs who are economically stressed, politically resentful of their own and Western governments, and just as inclined to cheer the destroyers as the builders of the existing Arab order.
Governments and globalization alone have not been able to achieve the sustained economic growth that is needed to shift the Middle East from a region of turbulence and violence to one of stable expansion and rising middle class prosperity. We have a new chance now to move in this direction, if governments, private sectors and foreign partners work together to achieve the elusive mix of democratic governance, efficient private sector-driven economies, resolution of major regional conflicts, and an end to destructive foreign militarism.
Rami G. Khouri is an internationally syndicated columnist, the director of the Issam Fares Institute at the American University of Beirut, editor-at-large of the Beirut-based Daily Star, and co-laureate of the 2006 Pax Christi International Peace Award.
Copyright ©2007 Rami G. Khouri / Agence Global
—————-
Released: 09 June 2007
Word Count: 814
—————-
For rights and permissions, contact:
rights@agenceglobal.com, 1.336.686.9002 or 1.212.731.0757