Origins
The origins nationalist notion of cultural and political unity among Arab countries lie in the late 19th and early 20th centuries, when increased literacy led to a cultural and literary renaissance among Arabs of the Middle East. This contributed to political agitation and led to the independence of most Arab states from the Ottoman Empire (1918) and from the European powers (by the mid-20th century). An important event was the founding in 1943 of the Baath Party, which formed branches in several countries and became the ruling party in Syria and Iraq. Another was the founding of the Arab League in 1945. Pan-Arabism’s most charismatic and effective proponent was Egypt’s Gamal Abdel Nasser.
Arab League
The Arab League or League of Arab States was a regional organisation formed on March 22, 1945 (Alexandria Protocol) and based in Cairo. It initially comprised Egypt, Syria, Lebanon, Iraq, Transjordan (now Jordan), Saudi Arabia, and Yemen; joining later were Libya, Sudan, Tunisia, Morocco, Kuwait, Algeria, Bahrain, Oman, Qatar, the United Arab Emirates, Mauritania, Somalia, Palestine, Djibouti, and Comoros. The league’s original aims were to strengthen and coordinate political, cultural, economic, and social programs and to mediate disputes; a later aim was to coordinate military defence. The official language is Arabic. The total Population of the Arab League was estimated at 345.98 Million in 2007.
Key history
The Sykes-Picot(-Sazonov) Agreement of 1916 was a secret agreement between the governments of the UK and France, with the assent of Imperial Russia, defining their respective spheres of influence and control in west Asia after the expected downfall of the Ottoman Empire during World War I.
Britain was allocated control of areas roughly comprising Jordan, southern Iraq, and Palestine, to allow access to a Mediterranean port. France was allocated control of southeastern Turkey (Cilicia, Kurdistan), northern Iraq around Mosul, Syria and Lebanon. Russia was to get Constantinople, the Turkish Straits and the Ottoman Armenian vilayets. The controlling powers were left free to decide on state boundaries within these areas. The region of Palestine was slated for international administration pending consultations with Russia and other powers, including the Sharif of Mecca.
The San Remo Conference was an international meeting of the post-World War I Allied Supreme Council, held in Sanremo, Italy, from 19 to 26 April 1920. It was attended by the four Principal Allied Powers of World War I who were represented by the Prime Ministers of Britain (David Lloyd George), France (Alexandre Millerand) and Italy (Francesco Nitti) and by the Ambassador of Japan (K. Matsui).
It determined the allocation of Class “A” League of Nations mandates for administration of the former Ottoman-ruled lands of the Middle East. The San Remo Resolution adopted on 25 April 1920 incorporated the Balfour Declaration of 1917.
The Balfour Declaration of 1917 (dated November 2, 1917) was a classified formal statement of policy by the British government stating that the British government “view with favour” the establishment in Palestine of “a national home for the Jewish people” with the understanding that “nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine, or the rights and political status enjoyed by Jews in any other country.” The declaration was made in a letter from Foreign Secretary Arthur James Balfour to Lord Rothschild, a leader of the British Jewish community, a private Zionist organization. The letter reflected the position of the British, as agreed upon in a meeting on October 31, 1917.
Arab spring and economic perspectives
Arab Spring losses to the region as a whole are estimated to be between $75 and $100 billion. Additionally, unemployment reached 18 percent, adding 17 million more people to the ranks of the jobless. According to Hamdi Tabaa, President of the Federation of Arab Businessmen, most Arab economies have been adversely affected by instability resulting from the Arab Spring revolutions, indicating that economic losses to Arab Spring countries exceeded $100 billion.
A study conducted by the Jeopolisti group, an advisory group, the economic losses of so-called “Arab spring” commissioned Libya, Syria, Egypt, Tunisia, Bahrain and Yemen range between $55 and 84 billion. According to the study, which was based on a database of the International Monetary Fund, the worst loss incurred by states that have cropped up where the popular revolts through bloodshed, in Syria and Libya, where the estimated cost of the revolution was $27.3 billion in the first and $14.2 billion in the second.
Egypt comes in third place with $9.79 billion, in Tunisia one billion and $52 million and in Bahrain one billion and nine million dollars, the latter is Yemen with $98 million loss.
The evolution of the overall situation in the Middle East is a key factor. In fact nearly 54% of remittances comes from this region with 38% from Kuwait and 12.5% from Saudi Arabia. The neighbouring countries are also important economic partners in terms of trade and investment.
Popular revolts in surrounding countries, especially Libya, have caused the return of several thousand Egyptian workers consequently leading to an increase in unemployment, the loss of a vital economic support for many families and the disappearance of an important source of foreign exchange.
Corruption cost
Participants in the Conference on “Towards a strategy to fight corruption,” held in Cairo, July 5th 2010, confirmed that most Arab countries suffer from corruption and the influence of money. This situation produce states do not having the ability to remedy the problems. The participants in this conference highlighted that corruption had cost the Arab countries a trillion dollars, otherwise this could raise people’s income by about (200 dollars) a year and achieve self-sufficiency of food and water and could help the fight against poverty.
Dr. Amer Al Khayyat Secretary-General of the Arab Anti-Corruption Organization stressed the fact that corruption is costing the Arab countries nearly one trillion dollars, pointing out that the total income of the Arab countries during the period from 1950 to 2000 amounted to three trillion dollars. One trillion dollars have been spent on armaments, one trillion dollars on development projects, education and infrastructure, and a one trillion dollars went illegally because of corruption, and this trillion latter could be used in the treatment of many of the problems facing the Arab countries, including poverty, food, income rising of the Arab citizen, and the achievement of sufficiency of water, projects of literacy and providing job opportunities for Arab citizens. He pointed out that Arab funds occupy 6 positions among the ten richest in the world and are not subject to any control and accountability with the exception of Kuwait Fund which is subject to the parliament.
Economic outlook for the Middle East
According to IMF the Middle East and North Africa region faces a diverging economic outlook, with oil exporters experiencing a pickup in growth in 2011 on the back of higher oil prices and oil importers seeing a dramatic downturn as the region faces heightened regional and global uncertainty.
The IMF’s Regional Economic Outlook for the Middle East and Central Asia, released October 26, projects growth in the Middle East and North Africa region at 3.9 percent in 2011, down from 4.4 percent in 2010.
The IMF has estimated GDP growth for the region’s oil – exporting countries (excluding Libya) – Algeria, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, the United Arab Emirates, and Yemen – by 4.9 percent in 2011, thanks to higher oil prices and oil production. GDP growth forecast for 2012 is moderate.
According to IMF estimations growth among the region’s oil importers – Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Syria, and Tunisia – is no more than 2 percent in 2011.Increased oil revenues have created additional room for government spending in the GCC. Several countries announced spending programs early in the year covering a wide spectrum of measures, such as subsidies, wages, and capital expenditure. At current projected oil prices and levels of production, revenue gains will more than offset the high levels of public spending. The IMF has estimated the external current account balance for oil exporters to increase from $202 billion to $334 billion (excluding Libya), and from $163 billion to $279 billion for the GCC.
In 2012, growth is expected moderate to about 4 percent. Several factors could result in a less positive growth scenario for region’s oil exporters. The most immediate risk is a sharp slowdown in Europe and the United States. Global oil demand would contract substantially, possibly leading to a sustained drop in oil prices.
For oil importers
As for the region’s oil-importing countries, the political and economic transformations occurring in several of them are expected to extend well into 2012. Together with a worsening economic outlook globally, and in the European Union—where growth is forecast to slow from 1.7 percent this year to 1.4 percent in 2012—the region is seeing a sharp drop in investment and tourism activity.
As a result, growth is down sharply this year, and the recovery in 2012 is expected to be weaker than earlier anticipated, with growth projected at just over 3 percent.
In response to growing social unrest, the economic downturn, and higher commodity prices, governments in the region have significantly expanded subsidies and transfers. The cost of this social spending is high, exceeding 10 percent of GDP in Egypt and more than 5 percent of GDP in most other countries. As a result, oil importers’ fiscal deficits are widening by an average of about 1.5 percent of GDP to –7.6 percent of GDP in 2011.
From the IMF point of view in the near term, such spending measures are appropriate to lessen the impact of the downturn. But from an efficiency and equity standpoint, it is better for governments to gradually replace universal subsidies with targeted social safety nets. Resources can then be used for critical investments in infrastructure and education and for supporting much-needed reforms.
Meeting the rising demands of the population will not be easy, the report notes—particularly as most countries have already used their fiscal and international reserve buffers to respond to deteriorating economic conditions in the wake of the Arab Spring, and have much less room left to respond to future shocks.
Given the increased risk aversion of international financial markets, the cost and availability of private financing will be constrained in the near term, but governments have the option of turning to official sources for external and fiscal financing.
Conflict across the region – particularly in Libya, Syria, and Yemen – has taken a massive human toll in addition to its enormous economic costs. The immediate priority for these countries is to avoid further humanitarian crisis and, once the conflict is over, to pursue an agenda of reconstruction and reform.
Nuclear race to lose steam across the Middle East
Interest in nuclear power in the Middle East has grown steadily over the past decade. By 2010, almost every country in the region had plans to develop atomic energy and a race to secure the necessary components, contractors and personnel was well under way.
But since the start of the year, the protests that have swept across the region have raised uncertainty about the nuclear power plans. Bahrain and Egypt’s programmes, in particular, are now certain to face delays.
In addition, nuclear power’s claim to be the most viable clean alternative to fossil-fuelled power generation has been undermined by the series of explosions at the Fukushima Daiichi nuclear plant in Japan following that country’s terrible earthquake on 11 March. For many years, the idea of developing a nuclear power programme in the Middle East was unthinkable. With enough oil and gas reserves to serve domestic demand and plenty more to export, nuclear power was expensive, unpredictable and unnecessary.
The situation has changed steadily due to concerns over diminishing hydrocarbon reserves. Oil-rich nations are increasingly aware of the economic value of selling their reserves on the international market or retaining it under the ground for future generations rather than using it to meet domestic demands.
Nuclear power provided the perfect solution. But such projects require large initial investment during the construction phase. With petrodollars to spend, countries such as Saudi Arabia would be able to handle the initial investment.
But the regional unrest and Japan’s nuclear disaster have combined to bring back old concerns. The immediate impact will be delays to nuclear projects, while the industry reviews its safety regulations. The events of the first quarter of 2011 will make the nuclear case harder to sell. Projects may be cancelled and schedules pushed back. The nuclear race is still on, but it is moving at a slower pace.
Islamic finance industry ‘crucial growth engine’
In 2011 the global Islamic finance industry had significant developments in regulatory frameworks, increased amount of the Shariah compliant products and services as well as the international trends towards standardization of the regulations, legal aspects, contracts, terms and conditions in order to make Islamic finance sector more trans jurisdictional.
The world’s problems such are Wall-Street changes, Eurozone crises and Arab Spring are providing further impetus for the growth of Islamic Finance. Industry forecasts suggest that Islamic banking assets with commercial banks globally, will reach $1.1 trillion in 2012. The Organization of Islamic Cooperation (OIC) is more likely to strength Islamic Finance with the legislative and regulatory framework in the market, which definitely would result in sustainable growth in Islamic Financial Industry. Eurozone crises would have a positive impact on the demand for alternative options of financial services among European customers.
Arab world major Statistics for 2011
| Index | Value |
| Area | 13,143,448 km² |
| Population | 352 Million. |
| Population density | 115.6 people / km² |
| GDP (2011) (current prices) | 2,357.2 billion |
| GDP (2011) (PPP) | 2986.9 billion |
| Per capita GDP (PPP) Est. 2011 | $8729.5 |
Source: Annual Directory 2012, Arab-Swiss Chamber of Commerce and Industry.
Currencies
| Currency | Exchange rate ($) | Currency | Exchange rate ($) |
| Algerian dinar (DZB) | ≈ 74.1 | Moroccan dirham (MAD) | ≈ 8.41 |
| Bahraini dinar (BHD) | ≈ 0.377 | Omani rial (OMR) | ≈ 0.385 |
| Comorian franc (KMF) | ≈ 381 | New Israeli shekels (ILS) (used in the PT) | ≈ 3.746 |
| Djiboutian franc (DJF) | ≈ 174.5 | Qatari riyal (QAR) | ≈ 3.641 |
| Egyptian pound (EGP) | ≈ 6 | Saudi riyal (SAR) | ≈ 3.75 |
| Iraqi dinar (IQD) | ≈ 1164 | Somali shilling (SOS) | ≈ 1625 |
| Jordanian dinar (JD) | ≈ 0.71 | Sudanese pound (SDD) | ≈ 2.682 |
| Kuwaiti dinar (KWD) | ≈ 0.28 | Syrian pound (SYP) | ≈ 57.45 |
| Lebanese livre (LL) (LBP) | ≈ 1504 | Tunisian dinar (TND) | ≈ 1.51 |
| Libyan dinar (LYD) | ≈ 0.81 | United Arab Emirates dirham (AED) | ≈ 3.673 |
| Mauritanian ouguiya (MRO) | ≈ 286 | Yemeni rial (YER)
|
≈ 219.1 |
Source: Annual Directory 2012, Arab-Swiss Chamber of Commerce and Industry.
Natural Resources
Oil plays an important role in the world economy, but it holds a place of particular importance in the Arab world. The economies of many Arab countries are based on oil, although some economies, such as that of Dubai, have diversified in order to focus on other sectors such as tourism and financial services.
The dependence of world industry and the economy on oil makes this the Arab world’s most important products. Approximately 30 billion barrels of oil is used every year, worldwide and the oil industry, from the production and distribution of oil to its refinement and sale, is the largest global industry, in terms of its value.
The Arab world is not the only producer of oil, although the Middle East has been the most important oil producer since the end of the Second World War.
Arab countries play an important role in the Organization of the Petroleum Exporting Countries or OPEC. Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates are all members of the organization, which is made up of 12 countries which are net exporters of oil.
According to the Oil and Gas Journal, Saudi Arabia contains approximately 260 billion barrels of proven oil reserves, about 20% of the world’s proven petroleum reserves. Kuwait’s territorial boundaries contained an estimated 101.5 billion barrels (bbl) of proven oil reserves, roughly 8 percent of the world total. Qatar has 15 billion barrels of proven oil reserves. Qatar was the sixteenth largest crude oil exporter in the world in 2009. Qatar’s proven natural gas reserves stood at approximately 896 trillion cubic feet (Tcf) as of January 1, 2011. Qatar holds almost 14 percent of total world natural gas reserves and is the third-largest in the world behind Russia and Iran.
According to the Oil and Gas Journal, Iraq’s proven oil reserves are 115 billion barrels, although these statistics have not been revised since 2001.
According to the Oil and Gas Journal’s January 2011 estimate, Egypt’s proven oil reserves stand at 4.4 billion barrels. Egypt’s estimated proven gas reserves stand at 77 trillion cubic feet (Tcf). Algeria contained an estimated 12.2 billion barrels of proven oil reserves as of January 2009, the third largest in Africa (behind Libya and Nigeria). Algeria had 159 trillion cubic feet (Tcf) of proven natural gas reserves (the eighth-largest natural gas reserves in the world) as of January 2009. Libya, a member of the Organization of Petroleum Exporting Countries (OPEC), holds the largest proven oil reserves in Africa, followed by Nigeria and Algeria. Libya had total proven oil reserves of 46.4 billion barrels as of January 2011, the largest reserves in Africa.
List of Arabian Sovereign Wealth Funds
| Sovereign Wealth Funds | US$ Billion | Origin | Established |
| Algeria – Revenue Regulation Fund | 47 | Oil | 2000 |
| Bahrain – Mumtalakat Holding Company | 14 | Oil | 2006 |
| Kuwait Investment Authority | 202.8 | Oil | 1953 |
| Libyan Investment Authority | 70 | Oil | 2006 |
| Mauritania – NFHR | >0.3 | Oil, gas | 2006 |
| Oman Investment Fund | – | Oil, gas | 2006 |
| Oman – State General Reserve Fund | 8.2 | Oil, gas | 1980 |
| Qatar Investment Authority | 65 | Oil | 2005 |
| Saudi Arabia – Public Investment Fund | 5.3 | Oil | 2008 |
| Saudi Arabia – SAMA Foreign Holdings | 431 | Oil | – |
| UAE – Abu Dhabi Investment Authority | 627 | Oil | 1976 |
| UAE – Dubai World | – | Oil | 2006 |
| UAE – Emirates Investment Authority | – | Oil | 2007 |
| UAE – International Petroleum Investment Company (IPIC) | 14 | Oil | 1984 |
| UAE – Investment Corporation of Dubai | 19.6 | Oil | 2006 |
| UAE – Mubadala Development Company | 14.7 | Oil | 2002 |
| UAE – RAK Investment Authority | 1.2 | Oil | 2004 |
| Total Arabian Investment funds US$ Billion | 1520 | ||
| Total world US$ Billion | 3824 | ||
| Arabian Funds % of World total | 40% |
Source: Annual Directory 2012, Arab-Swiss Chamber of Commerce and Industry.
Doing business
The following table gives the ranking of each Arab country for the ease of doing business according to the World Bank report for the ease of doing business in the world, where countries members of the GCC are in the top of rank with Saudi Arabia in the head (ranked 12th place).
Rankings on the ease of doing business
Source: Source: Annual Directory 2012, Arab-Swiss Chamber of Commerce and Industry.
(This indicator gives a general idea about the facility of doing business in each country; however, a cost-benefit analysis is indispensible to highlight the profitability of a certain project.)
According to the Global Competitiveness Report 2011-2012 released by the World Economic Forum, Gulf countries continue to be among the world’s 40 most competitive economies as in the last year, led by Qatar (14th) in Competitiveness Rankings, followed by Saudi Arabia (17st) and the United Arab Emirates (27th). Most Gulf countries continue the upward trend displayed in recent years, except UAE which lost two points. Also Jordan, Morocco, Algeria, Lebanon Egypt and Syria enter the ranking to be among 100 most competitive economies.
In recent years, competitiveness has been high on the agenda of economies in the Gulf region, resulting in numerous investments and reforms aimed at improving specific dimensions of national competitiveness. High energy prices have provided the financial means for investment. Unlike in previous periods of high energy prices, many countries of the region have taken advantage of this window of opportunity. It is important to note that, although almost all Gulf countries have attained very high GDP levels, only Bahrain and the United Arab Emirates are sufficiently diversified to be categorized in the innovation- driven stage of development. The remaining economies are classified into lower stages of development.
In economic terms, the Arab world is a highly diverse region, which is reflected in the levels of economic performance across the countries. Per capita GDP (PPP) for 2011 ranges from a high of US$ 102700 in Qatar, one of the wealthiest economies in the world, down to US$ 600 in Somalia. Economic structures also differ – while some countries are highly dependent on their abundant energy resources, other economies are more diversified, with relatively better-educated labor forces and benefitting from geographical proximity and facilitated access to the large European market. Despite the significant differences among Arab countries, some common trends emerge when taking most problematic factor for doing business in the Arab world. According to business leaders, restrictive labor regulations, inefficient bureaucracy, and a lack of access to finance are the top three hindrances to doing business in the region. as in the related figure.
Foreign Direct Investment
The fallout from the Arab Spring had a dramatic impact on FDI to pockets of the region. Numbers of FDI projects in Libya and Yemen fell by 80 per cent and 29 per cent, respectively. Declines of 26 per cent and 14 per cent were felt in Syria and Tunisia, respectively.
Despite political upheaval in North Africa, Africa as a whole was the growth hotspot last year, with a 24 per cent rise in FDI projects.
Vast natural resources across the Middle East and Africa meant coal, oil and natural gas were the leading investment spots. An estimated $35bn flowed into projects linked to those commodities according to the data.
Globally, the number of FDI projects rose by 5.6 per cent last year, faster than the 3 per cent rise the previous year. Estimated investment linked to FDI rebounded from a 14.5 per cent fall in 2010 to record 1.2 per cent growth during the year. Total investment reached $860bn.
It must be mentioned that total FDI inflows in 2006 reached a record high of US$ 55.6 billion, up from US$ 10.8 billion in 2003, which represents 14.6 and 6.2 per cent respectively of total inflows to developing countries.
Major recipients of FDI in the region were namely Egypt, Saudi Arabia and the United Arab Emirates. They captured around 74 per cent of total FDI inflows to the region.
In the second place the high-performing economies and includes Bahrain, Jordan, Lebanon, Oman and Qatar. Their combined share of total FDI inflows to the region was 22 per cent in 2006. Kuwait, Palestine, the Syrian Arab Republic and Yemen, were able to attract only 3.5 per cent of total flows in 2006 as can be seen in the figure.
Arab World and the emerging markets
Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. Currently, there are 28 emerging markets in the world, with the economies of China and India considered to be by far the two largest.
The term “rapidly developing economies” is being used to denote emerging markets such as The United Arab Emirates, Chile and Malaysia that are undergoing rapid growth.
In recent years, new terms have emerged to describe the largest developing countries such as BRIC that stands for Brazil, Russia, India, and China, along with BRICET (BRIC + Eastern Europe and Turkey), BRICS (BRIC + South Africa), BRICM (BRIC + Mexico) , BRICK (BRIC + South Korea) and CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa). These countries do not share any common agenda, but some experts believe that they are enjoying an increasing role in the world economy and on political platforms.
As of May 2010, Dow Jones classified the following 35 countries as emerging markets:
Dow Jones classifications for emerging markets
| All emerging markets | Of which Arab Countries | |||
| · Argentina
· Brazil · Bulgaria · Chile · China · Colombia · Czech Republic |
· Estonia
· Hungary · India · Indonesia · Latvia · Lithuania · Malaysia · Mauritius |
· Mexico
· Pakistan · Peru · Philippines · Poland · Romania
|
· Russia
· Slovakia · South Africa · Sri Lanka · Thailand · Turkey
|
· Bahrain
· Egypt · Jordan · Kuwait · Morocco · Oman · Qatar · U.A.E |
A new world order
According to a report of the Development Centre of OECD (Organization for Economic Cooperation and Development) in June 2010, the world balance of power is in the process of shifting toward the new emerging countries. This development actually exceeds the pure financial sphere. It cares of the world balance of power and wealth that is in the process of shifting, resonating in tune with the findings of a study, updated in 2010 by PricewaterhouseCoopers (PWC) on emerging markets. In fact, according to PWC the gross national product (GNP) of the seven largest emerging economies (known as E7 and called BRIC countries comprising also Mexico, Indonesia and Turkey) by 2020 will exceed that of the G7 (U.S., Germany , United Kingdom, France, Italy, Canada and Japan). By 2025, analysts of the PWC said that even the Chinese economy will become the world’s largest economy. By 2050, the economy of India should reach 90% of that of the United States. Finally, analysts PWC list some very promising countries: Vietnam, Nigeria, Egypt, Malaysia and Thailand.
While in this report we are trying to talk about the Arab world as a whole, it is not homogeneous. The enormous disparities in wealth between the oil-rich GCC states and the rest of the region – per capita income in Qatar is about $80,000 while it is little more than $1,000 in Yemen – mean that the GCC states will remain the engines of the regional economy in 2020.
The six economies of the Gulf Co-operation Council – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – are undergoing profound economic and social changes. This strategically significant subregion, which has one of the world’s youngest, wealthiest and most globalised populations, will be vitally important to the future development of the Middle East. Gulf countries are well placed to lead recovery along with global emerging markets, according to HSBC economists. They put forward the view that global growth will come from emerging markets, rather than developed, and that it is these markets that will lead global economic recovery.
There is indigenous wealth in the GCC, the highest per capita in the world, but the population is very small. There is excessive wealth to go beyond local opportunities. GCC members are investing in the wider Middle East and North Africa region and even looking towards India and the far East.
North Africa, particularly Morocco and Egypt, has large liquid markets and, crucially, large populations – more than 33m and 80m respectively. A young, aspirational middle class and rising consumer demand makes them strong growth markets. Egypt has benefited from having no restrictions on portfolio trading or foreign ownership and from the modernisation of the Cairo and Alexandria Stock Exchange. The World Bank sees Egypt as an example to follow for emerging economies in terms of pursuing economic reforms.
The Arab world is expected to post robust growth over the next decade both in terms of population and GDP. By 2015 the Arab population is forecast to reach 371m, about 50% increase over the level in 2000. Over the same period, the region’s real GDP (Gross domestic product based on purchasing-power-parity) is expected to grow by about 190%. Nominal GDP, which was US$661.9bn in 2000, is forecast to soar to over US$1.9trn in 2010 and US$2.9trn in 2015. Most of the growth of GDP come from the economies of the member countries of the Gulf Co-operation Council (GCC, consisting of Qatar, the UAE, Kuwait, Bahrain, Saudi Arabia and Oman) which are expected to post robust growth over the next decade both in terms of population and GDP. By 2020 the GCC population is forecast to reach 53.5m, a 30% increase over the level in 2000. Over the same period, the region’s real GDP is expected to grow by 56%. Nominal GDP, which was US$341.6bn in 2000, is forecast to soar to over US$1trn in 2010 and US$2trn in 2020.
Although the economic forecast is positive, it carries a risk: that unmanaged growth will bring negative side-effects such as power shortages and soaring prices, in particular for food. Some GCC states are already experiencing sporadic shortages of electricity and gas, while water supplies are already strained and food shortages loom as risks for an import-dependent region. A key challenge for the Gulf in the next decade therefore will be to manage energy, water and food resources to ensure both high living standards and sustainable growth in the long term.
For investors, these trends mean that there will be a broadening range of investment opportunities in the Gulf region, but also that it is important to take a nuanced and sometimes sceptical view of the potential of specific projects in different sectors. The scale of the GCC’s diversification plans means that private capital will be required in conjunction with state funding. Some of this capital will come from within the region; a key trend in the recent oil boom was that Gulf investors kept more of their money in the local economy as more investment opportunities arose. Gulf companies will also be seeking to tap international capital markets through the issue of international bonds (and Islamic securities), while local stock exchanges will gradually be upgraded in an attempt to attract more international investment, although this will again be a long-term process.
The following figures make a comparison between the whole Arab world and the main emerging countries (India, Brazil, Russia and Turkey), China is the main leader for the new emerging markets but we are not including it because of the scale raisons, in the meanwhile, China’s GDP (on purchasing-power-parity) has a spectacular upward trend which is expected to continue in the coming decade. The IMF data of Gross Domestic Product (GDP) for the emerging countries in addition to the Arab world for the period 1991-2015 show an upward trend. In terms of GDP (on purchasing-power-parity) the Arab world has a lower total GDP than India and a lower trend line (as can be seen in the related figure), however, in terms of GDP (at the current price) the Arab world even overcome India. In order to have more clear idea about the economic development in each country, the figure for GDP per capita gives more detailed comparison. The highest emerging countries in term of GDP per capita are Russia, Turkey and Brazil with $15807, $13392 and $11289.2 respectively. GDP per capita in the Arab world was estimated at $8320 in 2010. China’s GDP per capita is growing at a high speed since 2000, and is expected to overcome the GDP per capita for the Arab world in 2012 to reach $9171.
The main raisons for growth were the petrol revenues, investments in the infrastructure and the foreign direct investment (FDI). According to UNCTAD data of foreign investment in the Arab word as a whole has increased from $6.1 billion in 2000 to $79.3 billion in 2009. The volume of FDI in the Arab world between 2006 and 2009 reached even levels comparable to that of China ($72.7, $83.5, $108.3 and $95 billion for 2006, 2007, 2008 and 2009 respectively) as can be seen in the related figure.
The survey performed by the MEED showed that the development of the region’s infrastructure will continue to be one of the most critical themes for the next decade, with the need to improve power and water capacity, transport links, and social infrastructure, such as schools, hospitals and housing, as well as industrial output.
According to the Paris-based International Energy Agency, growth in global oil supply in the next 10 years will come mostly from the GCC, with the bloc’s share of global oil demand to increase from 18 per cent today to more than 24 per cent in 2020.
The projects industry will remain a major employer of foreign labour and a key shaper of the economy and of long-term development. Focus will shift to downstream development of refined products and petrochemicals, as well as establishing metals industries that add more value domestically and provide more job opportunities.
A primary problem of the Arab countries is the absence of a demonstrated international competitiveness in either manufacturing or services. The Arab world needs institutional reform and capacity building. Some of the International Monetary Fund and World Bank recommendations ranging from desirable education reforms to alterations in the regulations facing business.
If the region’s employment challenge can be successfully addressed, the Arab world could reap a demographic dividend as the new generation enters its most productive working years – a phenomenon that contributed to the outstanding performance of East Asia over the past four decades or so. The region’s young demographic could then turn from a potential liability to a bonus.
Cooperation Council for the Arab States of the Gulf
The Cooperation Council for the Arab States of the Gulf, formerly named and still commonly called Gulf Cooperation Council (GCC) is a regional organisation involving the six Arab Gulf states with many economic and social objectives in mind. The member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates with a population 35,869,438. The GCC was formed on 25 May 1981. The unified economic agreement between the countries of the Gulf Cooperation Council was signed on 11 November 1981 in Riyadh. The official language is Arabic. The combined GDP is $536,223 million. A common currency was planned to be introduced in 2010. Yemen is currently (as of 2006) in negotiations for GCC membership, and hopes to join by 2016.
Among the stated objectives are:
Formulating similar regulations in various fields such as economy, finance, trade, customs, tourism, legislation, and administration;
Fostering scientific and technical progress in industry, mining, agriculture, water and animal resources;
Establishing scientific research centres;
Setting up joint ventures;
Encouraging cooperation of the private sector;
Strengthening ties between their peoples; and
Establishing a common currency by 2010, the Khaleeji.
Agadir Agreement
The Agadir Agreement for the establishment of a Free Trade Zone between the Arabic Mediterranean Nations was signed in Rabat, Morocco on 25 February 2004. The agreement aims at establishing a free trade area between Jordan, Tunisia, Egypt and Morocco and it is seen as a possible first step in the establishment of the Euro-Mediterranean free trade area envisaged in the Barcelona Process. The Agreement could also be the stepping stone to the formation of a future Greater Arab Free Trade Area.
Lebanon and Syria expressed their interest to join the Agreement, which has not been fully implemented so far. Other potential adherents are Algeria, Libya, Mauritania and The Palestinian Authority.
Greater Arab Free Trade Area
As of 1 January 2005, the Greater Arab Free Trade Area (also referred to as GAFTA) has come into existence. GAFTA is a pact made by the Arab League to achieve a complete Arab economic bloc that can compete internationally. GAFTA is perhaps the beginning of a strong self sufficient Arab economy, and is relatively similar to ASEAN.
The Project was adopted in the Arab League Summit of Amman in 1997, with 17 Arab League members signing the pact Jordan, Bahrain, United Arab Emirates, Tunisia, Saudi Arabia, Syria, Iraq, Oman, Qatar, Kuwait, Lebanon, Libya, Egypt, Morocco, Sudan, Yemen, and Palestine. Possible future members are Comoros, Djibouti, Mauritania, and Somalia
The Greater Arab Free Trade Area was a project adopted in 1997, when 17 Arab League members agreed on decreasing the customs on local production and to make an Arab Free Zone for exports and imports between members. The members participate in 96% of the total internal Arab trade, and 95% with the rest of the world by applying the following conditions:
1-Instruct the inter-customs fees: To reduce the Customs on Arab products by 10% annually, the 14 Arab states reported their custom tariff programs to the Arab Economic and Social Council of the Arab League to coordinate them with each others, except for Syria that is still using the Brussels tariffs system.
2-Applying the locality of the Arab products: All members have shared their standards and specifications to help their products move smoothly from one country to another. The League also created a project to apply the Arab Agriculture Pact: which is to share the standards of the agricultural sector and inject several more restrictions and specifications where all members have involved in them.
3-Private sectors: The League created a database and a service to inform and promote for the private’s sectors benefits, and how there work would be in the GAFTA treaty is needed.
4-Communication: The Arab Economic and Social Council in its 65th meeting agreed on pointing a base for communication to ease communication between member states, and also to work to ease communication between the Private and public sectors to apply the Greater Arab Free Trade Area between members.
5-Customs Duties: In the 67th meeting the Arab Economic and Social Council agreed that the 40% decrease on customs on goods in the past 4 years of the GAFTA will continue and following the decisions of the Amman Summit of the Arab League, the members will put more efforts to eliminate all customs duties on local Arab goods.
Gulf Cooperation Council Countries (GCC)
• Economic boom: oil windfalls and market-oriented policies
• Diversification, liberalisation, infrastructure development privatisation
• Search for investment opportunities on domestic and foreign markets to absorb surplus liquidities
• Attractive foreign investment incentives: free zones, tax holidays, cheap energy and water supply
• Increase of Swiss investors’ interest in the Gulf market (more joint ventures and branches)
• Possible reasons:
– Political stability
– Fast growing market
– No oil price slump in the near future
– Good investment environment
– Geographically perfect location (crossroad between Europe, Asia and Africa)
North Africa
• Egypt, Morocco and Tunisia:
– High growth thanks to good interdependence with the EU market and good business environment
– Many Swiss investors due to big domestic markets and low cost production
– Tourism is developing well
• Libya and Algeria:
– Benefit from high international oil and gas prices
– Lots of business opportunities in infrastructure project financed by oil revenues
Near East
• Jordan:
– Good business environment and attractive incentives for foreign investors
– Good gateway to the Iraqi market
• Lebanon:
– Business and trade recovered quickly after the war
– Government remains committed to its economic reform program
Syria and Iraq:
– Huge economic potential remains to be exploited
SECO concludes that successful diplomatic solutions to the political crisis in the Middle East will contribute to regain Swiss investors’ confidence. Switzerland should aim at promoting stability in the MENA Region through the conclusion of Free Trade Agreements within the EFTA framework. Thus the more the MENA countries are being integrated into the world market through trade in goods and services, investments and technology transfer, the more their political and economic stability will be strengthened.
Top companies in the Arab world
| Rank | Company | Country | Industry |
| 1 | Saudi Arabian Oil Co. | Saudi Arabia | Oil & Gas – Integrated |
| 2 | Kuwait Petroleum Corp. | Kuwait | Oil & Gas – Integrated |
| 3 | Iraq National Oil Company | Iraq | Oil & Gas – Integrated |
| 4 | Sonatrach | Algeria | Oil & Gas – Integrated |
| 5 | Kingdom Holding Co. | Saudi Arabia | Investment Services |
| 6 | Saudi Basic Industries Corporation (SABIC) | Saudi Arabia | Chemical Manufacturing |
| 7 | Abu Dhabi National Oil Co. | United Arab Emirates | Oil & Gas – Integrated |
| 8 | National Oil Company (NOC) | Libya | Oil & Gas – Integrated |
| 9 | Qatar Petroleum | Qatar | Oil & Gas – Integrated |
| 10 | Saudi Telecom Company | Saudi Arabia | Telecommunications |
| 11 | Egyptian General Petroleum Corporation (EGPC) | Egypt | Oil & Gas – Integrated |
| 12 | The Emirates Group | United Arab Emirates | Airline |
| 13 | Saudi Binladin Group | Saudi Arabia | Diversified – Construction, Telecom, Mining |
| 14 | Dallah Albaraka Group | Saudi Arabia | Diversified – Finance, Media, Other |
| 15 | Saudi Electric Company | Saudi Arabia | Electric Utilities |
| 16 | M.A. Kharafi & Sons | Kuwait | Diversified – Engineering, construction, other |
| 17 | Abdul Latif Jameel Group | Saudi Arabia | Retail – Automobile |
| 18 | Saudi Oger Company Ltd. | Saudi Arabia | Construction Services |
| 19 | Saad Group of Companies | Saudi Arabia | Diversified – Construction, Healthcare, IT |
| 20 | Emirates Telecommunications Corporations (Etisalat) | United Arab Emirates | Telecommunications |
| 21 | Group ONA | Morocco | Diversified – Mining, Construction, Finance, Other |
| 22 | ETA – Ascon Group | United Arab Emirates | Diversified – Engineering, construction, other |
| 23 | Orascom Telecom Holding | Egypt | Telecommunications |
| 24 | Consolidated Contractors International Company S.A.L | Saudi Arabia | Construction Services |
| 25 | Jumbo Electronics Co. Ltd. | United Arab Emirates | Appliance & Tools |
| 26 | Maroc Telecom | Morocco | Telecommunications |
| 27 | Suez Canal Authority | Egypt | Misc. Transport |
| 28 | National Commercial Bank | Saudi Arabia | Commercial Banking |
| 29 | Emaar Properties | United Arab Emirates | Construction Services |
| 30 | Savola Group | Saudi Arabia | Food Processing |
| 31 | Industries Qatar | Qatar | Integrated petrochemical and steel industries. |
| 32 | Arab Bank PLC | Jordan | International Trade Financing |
| 33 | Orascom Construction Industries | Egypt | Construction Services |
| 34 | Al Rajhi Banking and Investment Corp. | Saudi Arabia | Commercial Banking |
| 35 | Telekom Egypt | Egypt | Telecommunications |
| 36 | Samba Financial Group | Saudi Arabia | Commercial Banking |
| 37 | Gulf Air | Bahrain | Airline |
Source: Annual Directory 2012, Arab-Swiss Chamber of Commerce and Industry.