The GCC states in 2001: An overview of
the changes in their economies
The past 12
months have seen some interesting changes in the economies of
the Gulf Co-operation Council states. In a long-term approach
to ensure sustainability, the GCC countries have attempted
diversification and a more open approach to global markets.
Bahrain is an old hand at this strategy, Saudi Arabia and
Kuwait have undertaken greater non-oil based manufacturing in
2001, and Qatar and Oman have been involved in media activity
and transport projects respectively.
However, in 2001 the
United Arab Emirates has taken the lead among the GCC
economies in innovative cross-border business. Dubai in
particular has looked more toward foreign involvement in its
economy, and the emirate is increasingly turning to tourism,
which now account for 20 percent of GDP.
After the
Sept. 11 attacks on the United States however, this major
source of income will undoubtedly decline. Less than two weeks
after the attacks, luxury hotels in Dubai had already reported
a 30 percent fall in bookings, and tourists may take their
time before returning. Visitors from neighboring Saudi Arabia
are still coming to Dubai, but speculators have oversupplied
the emirate with luxury hotels, and European and US travel
agents have long been offering rooms at very cheap rates.
Another recent example of diversification is the
establishment of the Dubai Internet City and the adjacent
Media City. Microsoft and Cisco Systems are prominent players
in the former, which seeks to bring information and
communication technology companies together in one location,
and the recent relocation of Middle East Broadcasting
Corporation, with its vast pan-Arab coverage, from London to
Media City was a major step forward for the emirate.
Also moving to globalize, some UAE companies have made
efforts to expand into the international arena. The real
estate company Emaar has looked to India, where it is to build
a group of luxury villas, complete with golf course and other
facilities. The Abu Dhabi-based telecommunications company
Thuraya is similarly trying to expand into wider markets; it
has already has signed service provider agreements with 45
states and aims to cover 100 countries by the end of the year.
Elsewhere in the GCC economies, the picture was gloomier.
Like their regional and global counterparts, GCC airlines have
suffered. On Sept. 24, Dubai-owned Emirates airlines announced
that it would cancel 26 flights per week to destinations in
Europe, the Gulf and the Indian subcontinent. Gulf Air,
jointly owned by the governments of Abu Dhabi, Bahrain, Oman
and Qatar, said on Sept. 26, that it would cut operations by
15 percent to reduce costs. The Sept. 11 effect also seems to
have been behind the announcement by Sharjah that it would
postpone the launch of its own international carrier, Sharjah
Airlines, until 2002.
However, despite the gloom,
Sharjah remains in talks with another emirate to finance
expansion once the airline is launched and has already leased
three aircraft; while Emirates stated that it would take
delivery of 11 new wide-bodied aircraft by September, 2002.
Emirates, which was the first airline to commit to the planned
Super jumbo A380 earlier this year, also announced that it
would soon add five new routes to its network.
For
airlines and the rest of the economy, “security” has become a
more important issue, and with this has come some important
changes. In moves to tighten security control, the UAE has
come under pressure to introduce stricter regulations to
control financial transfers and funds deposited in banks. The
UAE has responded to the challenge, stating in early November
that it is prepared to play its part in the international
effort to protect the world economy from money laundering, and
announcing major changes to its financial system. These
include new anti-money-laundering legislation due to be
introduced soon. There will also be a ceiling on the amount of
money that can be brought into the country undeclared,
although that limit has yet to be announced.
Having
gained a reputation for financial laxity, the UAE is keen to
redress the balance. Meanwhile its officials have been working
closely with the US to target suspect organizations. However,
it should be remembered that this process began before Sept.
11. In an earlier indication of moves by the UAE to conform to
Western standards, the chairman of the Central Bank said on
Sept. 8 that the government would soon issue legislation
penalizing money-laundering.
The GCC countries as a whole
have this year pushed forward several important topics aimed
at boosting regional co-operation. Foremost among these are
measures aimed at implementing unifying customs tariffs (in
2003) and a monetary union (by 2010), while talks between the
EU and the GCC regarding a possible free trade agreement
resumed.
GCC countries have also said they will join
forces with the others to cut oil production in January to
stem the falling price of crude. The Dolphin scheme, which is
aimed at supplying Qatari gas to the UAE and possibly further
to Oman and Pakistan, is the first such international project
in the region, including a 24.5 percent French stake in the
operating firm.
However, the general trend in the
subregion after Sept. 11 has been one of caution and
contraction, as summed up by the performance of its various
bourses. Stock markets in most of the GCC states were hit by
the recent attacks on the US, though the value of shares on
the UAE bourses in Abu Dhabi and Dubai rose after Sept. 11.
Those rises were spurred by initial expectations that
Gulf investors in the US would repatriate much of their money.
Such an injection of funds would have helped the Dubai
Financial Market and the Abu Dhabi Stock Market continue their
moderate gains of 2001, but this did not happen and shares
fell again.
Unlike the pattern in the UAE, the larger Gulf
markets did drop immediately after the attack. Saudi Arabia’s
bourse, the biggest in the Arab world, fell after the attack,
as did that of Kuwait, the second largest. For these and other
GCC bourses, the short-term outlook is still bleak, and
depends partly on the next episode in the anti-terrorism saga.
Riad Al Khouri is a Jordanian
economist who wrote this commentary specially for The
Daily Star |
