Impact of the Financial Crisis of 2007-2009 on the Gulf Area - Research Paper Example

? Impact of the Financial Crisis of 2007-2009 on the Gulf Area This paper aims at examining the impact of the global financial crisis of 2007-2009 on the countries in the Gulf Areas, universally referred to as the Gulf Cooperation Council (GCC). The essay will mostly be based on the economic situation of Qatar, one of the countries in the Gulf area, as an example of how the last global financial crisis affected the countries; economy. Although the financial crisis began in the Western countries, its impact was felt across the world, with most economies feeling the impact. The economic crisis was associated with great losses of financial wealth, economic output, increased government interventions, psychological consequences among other significant costs. This paper will assess the extent to which the Qatar and other countries in the Gulf Cooperation Council were affected by the financial crisis. Impact of the Financial Crisis of 2007-2009 on the Gulf Area Introduction This paper aims at studying the impact of the global financial crisis of 2007-2009 on the countries in the Gulf Cooperation Council (GCC), or the Gulf Area. The Gulf Area is an economic and political Union of Arab states around the Persian Gulf including Kuwait, Bahrain, Saudi Arabia, Oman, The United Arab emirates and Qatar. The cooperation was established in 1981 to foster unity and trade and cooperation among the member states. The Gulf Area consists of the fastest growing economies mostly due to the revenues gotten from huge deposits of natural resources such as oil and natural gas. This paper will largely be based on the impact of the global financial crisis on the economy of Qatar with some examples drawn from the other countries in the Gulf area. Petroleum is the backbone of Qatar’s economy and accounts for about 70% of the countries revenues (Read, 2009). The GDP of Qatar ranks among the robust in the world and it has become a major player in the global economy from the region. This essay will try at analyze the impact of the global financial crisis on the economy of Qatar as well as its reaction to the crisis as well as how the other countries in the Gulf were affected. The main objective of this essay will be to answer the question as to how the last financial crisis (2007-2009) affected the economic situation in the Gulf area. The economic crisis of 2007-2009 was associated with great losses of financial wealth, economic output, increased government interventions, psychological consequences among other significant costs (Read, 2009). Although the financial crisis began in the Western countries, its impact was felt across the world, with most economies feeling the impact. The crisis is deemed by most economists as the worst financial crisis ever since the Great Depression that befell in the 1930s. The 2007-2009 global financial crisis resulted in downturns in major stock markets across the world, and threatening the collapse of some of the largest financial institutions in major economies around the globe (Read, 2009). This resulted in government interventions to bail out banks and other financial institutions as well as big companies in order to protect the economy from collapsing. Some of the results of the financial crisis across the globe included massive prolonged unemployment, high interest rates, and housing crisis among others. The crisis also led to a reduction in global economic activities between 2007 and 2012 and played a major role in the debt Crisis in the European countries (Fried, 2012). The global financial crisis has been attributed to various causes, mostly from the West. According to the U.S. Senate’s Levin-Coburn report, the financial crisis occurred as a result of complex, high risk financial products and cases of undisclosed conflicts of interests among different parties, as well as the inadequacy of proper regulators. Most critics have pointed out to the repeal of the Glass-Steagall Act (1999) of the US as the origin of the financial crisis. Repealing the Act effectively did away with the separation between depository banks and investment banks in the US thereby leading to a significant negative impact on the US banking sector. The failure of credit agencies and investors to accurately price the risks of mortgage related products and the failure of the government in instituting proper regulatory frameworks also contributed to the financial crisis in the US, which eventually spread to other parts of the world. According to Andrew Ross Sorkin (2009), the financial crisis, which begun in the US was avoidable and could have been prevented had the government t taken substantive measures in good time to prevent it. Sorkin (2009) states that the crisis began as early as in 2006 with a decline in the real estate markets as a result of imbalances in extending mortgage financing. The financial crisis occurred as a result of a collapse in housing and credit shocks that plunged the financial institutions in a lending crisis (Fried, 2012). Literature Review There exists a lot of research that has been documented about the global financial recession of 2007-2009 and its global effects. The financial crisis is regarded by most people as one of the worst economic disasters in modern times. Most of the studies available tend to focus on the crisis in Europe and America and the interventions taken by those countries to cub the effects of the financial crisis in the regions. The crisis had global implications and its effects were widespread across the world. Albeit the fact that the crisis begun in the US, it quickly spread to other parts of the world and in a period of two years, some of the chief economies of the world encountered some of the darkest moments in their history. Governments were forced to intervene and bail out financial institutions and companies in order to help preserve jobs and attract investment. The effects of the financial crisis persisted up until as late as 2012. The literature available on the issues of the global recession of the financial crisis of 2007-2009 covers a wide range of topics. Some of the recurring themes covered by various studies include the causes of the crisis, the impact of the crisis on various economies around the world, the responses of various governments to the financial crisis, analysis of the effectiveness of the responses by different governments and finally other studies have tried to point out specific actions that should to be taken in order to prevent crises of such a magnitude in the future. Other studies have tried to compare this crisis to other financial crises that have ensued in the past such as the great depression of 1930s. In the Middle East, the impact of the global financial crisis was also felt, though at a minimal level as compared to the countries in other parts of the world. Qatar, for instance was among the first countries to be hit with the crisis (Pezzuto, 2013). It was also among the first countries to issue policy responses to try and abate the crisis. Despite the Arabian countries being affected by the global financial crisis, the effects of the crisis have only been limited to certain parts of their economies with a very small impact on the general economic situation of the Arabian states. This is in contrast to the impact of the crisis in other parts of the world, especially in Europe and America (Pezzuto, 2013). The International Labor Organization (ILO) (2009) has outlined various reasons for the minimum impact of the global financial crisis on the countries in the Gulf Cooperation Council (GCC) as compared to those in other parts of the world. ILO states that the Gulf Area is well placed to cope with any financial crisis of an international magnitude. One of the reasons for this is the fact that over the years, the GCC has been benefiting from windfall revenues derived from high international prices of their commodities, including oil and natural gas (Malcolm, 2010). The other reason is that the impact of Islamic religion in the region has prompted fairly prudent management of financial assets among the financial institutions I the Gulf area. Lastly, the GCC countries are likely to escape major effects of global financial crises because the countries have very limited interaction with other countries from other regions apart from exporting and importing commodities. The countries do not have c0omplicated agreements and arrangements with other countries in the West that can bind the Gulf Area to succumb to the financial crisis. Despite the factor mentioned above, the countries in the Middle East and in the Gulf Area in particular, still felt a certain degree of the global financial crisis. The financial markets of the Gulf Cooperation Council (GCC) were greatly affected by the crisis resulting in a slight decline. The real economies of the countries in the Gulf were however not adversely affected by the crisis despite a slight decline in their financial markets. The general economies of the GCC were shielded from the effects of the global financial crisis due to the mass surplus revenues gotten from the oil boom that has the states have been experiencing since 2003. The low market capitalization in these countries also insulated their economies from being harmfully affected by the global economic crisis (Malcolm, 2010). According to a study conducted in 2009 by the International Labor organization (ILO), the global financial crisis resulted in massive unemployment in the Arabian states with slight reductions in the GDP of the countries around the Persian Gulf. These, according to ILO (200), are indications that the GCC was hit by the financial crisis and needed to put enough measure in pace to prevent further effects in the near future. If the necessary steps are not taken by the governments in the GCC, The effects of the crisis are likely to be exposed in the near future. Some countries in the GCC such as Bahrain have been hit by effects such as extended market volatility and high inflation in some quarters. The general decline in the standards of living in the country have been a major cause of alarm for some economists in the oil rich nation with statistics indicating the economic situation is expected to aggravate in the future. This has led to calls of well developed social security mechanisms and policies in order to protect the livelihoods of the vulnerable workers (Joseph, 2010). Malcolm C. Peck (2010) concluded that the financial crisis of 2007-2009 only added to the socio-political and financial problems that have been existing in the GCC for a very long time. Countries in the GCC largely depend on natural resources such as oil and natural gas to grow and develop their economies. The efforts of the countries to diversify in to other sectors of the economy such as tourism, trade and industry and agriculture have been greatly affected by the international financial crisis. The financial crisis made it difficult for the countries in the GCC to engage in international trade with other countries because of the crisis (Harman, 2009). The governments also had to try and save the emerging industries and businesses that were growing to become important economic sectors for the country in the future. Some of the pre-existing socio-economic problems in the GCC that have been worsened by the financial crisis include massive unemployment, especially for women and the youth and the impact of Islamic religion on the economies of these countries (Harman, 2009). The International Labor Organization (ILO) (2009) tries to look at the positives that the Arab countries can gather from the financial crisis and forge their way ahead in to the future as powerful economies on the international scene. According to the report (2009) the Arab states out to use this financial crisis as an opportunity to focus on regional investment and development, reforming the socio-economic situation and encouraging member states to strengthen their social and economic policies in order to promote improved regional cooperation in the Gulf Area. The GCC countries should use the financial crisis to strengthen themselves in to the future by putting in place adequate measures to promote gender equality, employment, human rights, and increasing the living standards of the poor people in member states. According to ILO (2009) these measure have been proven on the international scene to be catalysts of economic growth and improving inter-state relationships. Research Objectives and Research Questions The key objective of this research project is to analyze the impact of the last global financial crisis of 2007-2009 on countries in the Gulf Cooperation Council (GCC). This objective will be achieved through examining the effects of the financial crisis on the Arab states within the GCC. Most of the data analyzed in this essay will mainly be from Qatar, one of the leading economies from the Gulf Area. The impact that the financial crisis had on Qatar can be related to the other countries in the Gulf area because all the nations in the area have a similar economic model. A significant amount of data will also be drawn from other nations in the region like the Kingdom of Bahrain. This research study is based on the hypothesis that the financial crisis of 2007-2009 had a limited impact on the countries in the Gulf Cooperation Council as compared to the impact the crisis had in other regions of the world such as Europe and America. The study will endeavor to study a wide range of data from the GCC countries to try and assess the impact of the financial crisis on the countries in the region and compare that with the effects of the crisis in Europe so as to ascertain the strength of this hypothesis. Research Design (Methods and Methodology) The research design for this research study will be based on the case study method. The case study research method is an exploratory or descriptive analysis of a particular situation in order to find underlying principles. The study will manly use the retrospective case study technique where specific examples from the Gulf Area will be selected for analysis in this project. The case study method has been selected for this study because it excels in creating an understanding of complex issues. The case study research method can also reveal a lot of information and to add on what is already known pertaining a particular case at hand. Another advantage of case studies that makes it compelling to be used in this research is the fact that it lays emphasis on having a detailed contextual analysis of an issue in order to allow for every aspect of the problem to be examined carefully and appropriate conclusions derived. Data Collection This study will principally be based on secondary methods of data collection. This will entail a detailed study of economic reports from journals, periodicals, library books, financial reports of companies in the Gulf Area and most importantly case studies and relevant internet sources. Other primary methods of data collection including questionnaire will be used to supplement the data gathered from the secondary data collected. The sample size to be studied includes both men and women who had been in employment in Qatar during the time of the financial crisis and who were expected to have had a first hand in feeling the impact of the financial crisis. Several companies and financial institutions in the Gulf Area will also be selected for the purposes of this study. The age of the sample size ranges between 24 and 50 years of age, which mainly consists of the majority of the workforce in Qatar. A section of the population, mostly based on Doha, the Capital City of Qatar, will be selected based on random sampling technique and together constitute the sample upon which this study will be based. The selected individuals will be given questionnaires to fill in with details of their perceived effects of the financial crisis. Some questionnaires will be sent to respondents via email, while a majority of them will be delivered personally to respondents. The respondents will have up to two days to fill in the questionnaire after which I will collect them back for analysis. The main aim of using questionnaires is to get useful information from respondents regarding colors and the effect, if any that certain colors have to them. The questionnaires will be simply structured with various sections so as to maximize the return rates from respondents. Some of the questions that the respondents will be required to fill in include: To what extent do you think Qatar and the entire Gulf Area were affected by the financial crisis? How were workers affected by the global financial crisis? What measure did the government take to end the crisis? Were the measure taken effective? Data Analysis The data collected will be carefully analyzed so as to develop a more reliable report with significant findings. Data collected is qualitative and will require qualitative methods of data collection. The stages of data analysis will be data cleaning, sorting the data, analyzing the quality of the data, initial analysis and the final analysis report. The questionnaires will be well analyzed during the data cleaning process to determine which questions were fully responded to and if the respondents filled in the right details. The questionnaires will be analyzed to only remain with relevant information for this research. After the cleaning the data, the data will be sorted out in terms of the quality of the information contained in them with regard to this research. A detailed analysis will then be conducted to come up with appropriate conclusions and a final report written with relevant recommendations. Analysis and Research Findings The study shows that countries in the GCC were less affected by the global recession of 2007-2009 as compared to their counterparts in the developed countries across Europe and America (Wallison, 2013). The study therefore affirms the hypothesis of the research that the impact of the global recession had very little impact on countries in the Gulf area as compared to European and American countries. This can be attributed to an extensive variety of explanations including the fact that the countries in the GCC are less exposed to sub-prime assets that were largely affected by the recession (Wallison, 2013). The financial institutions of the GCC managed to escape the effects of the recession because they have mainly focused traditional lending and ways of mobilizing savings as opposed to the methods used in the developed countries. The businesses and companies in the Gulf Area have very little interaction with other organizations outside the area thus being sheltered from the negative effects of the recession. Another reason why the countries in the GCC were less affected by the recession is the fact that some of the countries in this region such as Qatar were among the first ones to experience the effect of the recession and therefore acted promptly to put in place adequate measures to contain further damage on the economy. The part of the economy that was affected was mainly the non oil economic sectors consisting of different businesses and companies. There was a decline in non oil related activity during the recession. This led to prolonged unemployment in the GCC. Conclusion This project was based on a study of the impact of the global financial crisis of 2007-2009 on the countries in the Gulf Area. The research was guided by the hypothesis that the financial crisis of 2007-2009 had a limited impact on the countries in the Gulf Cooperation Council as compared to the impact the crisis had in other regions of the world such as Europe and America (Woods, and Meltdown, 2009). The literature review section shows a detailed analysis of different articles about the global recession and its influence on the countries in the GCC. The research design of this project was based on the retrospective case study technique where specific examples from the Gulf Area will be selected for analysis in this project. The case study method has been selected for this study because it excels in creating an understanding of complex issues. This study was based on secondary methods of data collection. This entailed a detailed study of economic reports from journals, periodicals, library books, financial reports of companies in the Gulf Area and most importantly case studies and relevant internet sources. Other primary methods of data collection including questionnaire were also used to supplement the data gathered from the secondary data collected. The study shows that countries in the GCC were less affected by the global recession of 2007-2009 as compared to other dispensations in the developed countries across Europe and America. The study therefore affirms the hypothesis of the research that the impact of the global recession had very little impact on countries in the Gulf area as compared to European and American countries. References Fried, J. (2012), Who Really Drove the Economy into the Ditch? (New York, NY: Algora Publishing. Harman, C. (2009). Zombie Capitalism: Global Crisis and the Relevance of Marx / London: Bookmarks Publications. International Labor Organization (ILO) (2009). The financial and economic crisis: A Decent Work respons. Geneva: International Institute for Labor Studies. Joseph E. S., (2010). Freefall: America, Free Markets, and the Sinking of the World Economy. W.W. Norton. Malcolm C. P. (2010). The A to Z of the Gulf Arab States. Scarecrow Press. Pezzuto, I. (2013). Predictable and Avoidable: Repairing Economic Dislocation and Preventing the Recurrence of Crisis, Publisher: Gower Pub Co; New edition edition. Read, C. (2009). Global financial meltdown: how we can avoid the next economic crisis / Colin Read. New York: Palgrave Macmillan. Sorkin, A. R., (2009). Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves.Viking. Wallison, P., (2013). Bad History, Worse Policy.Washington, D.C.: AEI Press. Woods, T., and Meltdown E. (2009). A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse / Washington DC: Regnery Publishing. Appendix Graph of performance of non-oil related sector of the economy of the GCC Read More