Third World Development Strategies - Research Paper Example

?Third World Development Strategies Introduction The current ification of global economies into developed and developed countries fails to be holistic since it does not indicate the actual state of such economies. Most countries in the Middle East and south East Asia are classified as developing economies despite having GDPs that greatly exceed those of European countries that are considered developed countries. According to Mankiw (2011), GDP is not an absolute measure of a country’s economic well-being. This argument perfectly fits the economies of Saudi Arabia and other economies such as Qatar, the United Arab Emirates, Oman, Kuwait, South Korea, and Vietnam. Saudi Arabia is the largest oil based economy in the world and it has the largest geographical area in the Middle East. The Middle East countries holds 66% of the proven global oil reserve and this explains the country’s dependency on oil exports. Saudi Arabia is the richest of them all with its proven oil reserve accounting for nearly 25% of the total global oil reserve. On the other hand, economies in the South East Asia are not fully dependent on oil. This paper will therefore, explore trends of Saudi Arabia economic growth as well as economies of other countries in the Middle East and South East Asia. Since the early 1970, Saudi Arabian economic progress has been tied to global oil prices. The country is the largest global producer with a capacity of 10,500, 000 barrels per day. This accounts for nearly 10% of global fuel requirements. Following the Arab- Israeli war of the 1970, global oil prices escalated making Saudi Arabia to become the most prosperous nation in the Middle East. The country is among the few countries, which enjoy favorable international trade. In addition, Saudi Arabian economy has a considerable surplus compared to its trading partners. In the mid-1980s, global economies were struck by an element of uncertainty and planning which considerably reduced oil importations and oil budgets. Following the phenomenon, Saudi Arabia oil production dropped from about 10 million barrels per day to about 2 million barrels per day. This robbed Saudi its position as the key producer in OPEC and settled for the production quota system. Within this system, the country’s oil production was largely governed by a desire to maintain its market share. Saudi in the Lost Decade (1980’s) The lost decade is the economic period between 1980s and 1990s, which was characterized by severe economic hardships in Latin American countries. The lost decade was also characterized by a negative economic growth, increased poverty and high debts. This made global creditors such as the IMF impose regressive actions and structural policy as an effort of controlling global credit crisis. The monetary policies made by the IMF and other global monetary organizations had a significant impact on Saudi Arabian economy. This was experienced as either a direct impact or an indirect impact resulting from global oil prices and fluctuating global energy demands. Similarly, other economies in the Middle East such as Qatar, UAE, and Kuwait were experiencing similar economic fluctuations. However, Qatar experienced a steady economic progress that was marked by an increase in the total gross domestic product from US $ 655 million in 1970s to $ 2000 million in 1978. Qatar is the only country in the Middle East that experienced a positive economic growth during the 1978-1979 oil shock. Other countries such as Kuwait and UAE also enjoyed considerable economic growth resulting from opening of new oil fields and increasing global oil prices. Economies in the South East Asia such as Vietnam and South Korea had a slightly different shift during the 1980s. The main difference between the two economies and Saudi Arabia is the exportation of oil and the influence of western economies. Saudi Arabia became a center of interest for global powers during the lost decade. The presence of oil and the escalating fuel demand made Saudi Arabia to become a close ally of America and other western powers. For instance, Vietnam shifted from a centralized economy into a socialist planned economy during the 1980s "Doi Moi" economic reforms. Since these reforms, Vietnam has experienced a steady economic growth leading to its integration in the global economy. In the early 1980s, Vietnam was a stagnating economy resulting from ideological and political crisis. This period was also characterized by high unemployment, low productivity, technological shortfalls, and unavailability of consumer goods. Between 1970s and 1990s, Vietnam was governed under socialist policies and therefore its economy was heavily dependent on the Soviet Union and its allies. Vietnam is an agricultural based economy, with the sector accounting for 30% of the total GDP. Development Strategies in Pre-SAP and Post SAP Periods Monetary policies designated by global financial institutions aimed at direct monetary control. This was the era between 1980 and 1985 and it had significant implication on global economies. According to Thorvaldur (2000), monetary policies set in this era emphasized on direct monetary controls. This was a significant approach since it necessitated monetary and capital markets development. Saudi Arabia responded to the SAP period through economic through economic diversification and intensified investment in physical infrastructure. The increasing oil revenues and the need to establish a modern economic center in the Middle East inspired the Saudi government. The escalating ideological divide between the former Soviet Union and America also inspired economic prosperity in the country. In the early 1970s, Saudi Arabia initiated a massive campaign to restructure its health and education systems. According to Thorvaldur (2000), Saudi Arabia experienced a speedy rate of economic growth in the SAP period making it to be ranked as a middle-income country Despite these developments, oil wealth accounted for nearly 40% of the total GDP making the country’s economy susceptible to global oil price fluctuations. In addition, the oil boom of the 1970-1980s influenced most economic development strategies set by the Saudi Arabian government. For instance, the government was earning $0.89 per barrel of crude oil in 1970. The price almost doubled within a year to reach a record high of $ 1.57 in 1973. In the same period, earning from oil revenue increased from US $ 4.3 billion to US$ 102. This was a dramatic increase in government’s earnings and it had a similar implication on government’s long-term development policies. In the early 1970s, Saudi Arabian policy makers were concerned with decentralization policies and the transformation from a traditional monarchy system into a modern economy. Thus, the country targeted its economic political structure as the first strategy towards the transformation. However, the country faced a geopolitical dilemma due to its loyalty to the western powers. The country remained an ally of the western powers since the beginning of World War I. This was the main difference between Saudi’s policies and those of Vietnam and South Korea. The political divide between the former Soviet Union and the US had a major influence in developing economies during the SAP era. Although global monetary institutions such as the IMF were concerned with equitable distribution of wealth and neutral monetary policies, most of the policies were favored western powers. The country’s association with western powers was the basis of the country’s economic development strategies. Diversification of the oil industry was also a basic economic development strategy that accelerated the country’s economic growth. The diversification and liberalization of the oil sector was a western-engineered policy that was aimed at reducing government’s control over oil production and exportation. In the pre SAP period, the Saudi government produced and exported most of the oil under the oil producing and exporting company Saudi Amarco. However, following the diversification of the country’s economy, the sector has witnessed the involvement of other companies such as SAMREC, Persian Gulf and SABIC companies. Existence of several companies in the oil sector has contributed to its diversification and decentralization. In Vietnam, the 1975 end of the Vietnam civil war and the creation of a socialist economy marked the pre SAP era. Been an agricultural dependent economy, Vietnam’s economic strategies were aimed at achieving economic prosperity in the agricultural sector. In addition, Vietnam’s economic strategies were congruent to those of other neighboring countries such as India and Pakistan, which had enjoyed significant political stability. Most of Vietnam’s economic development strategies were based on the 1986 Doi Moi policy. This policy targeted political reforms as an economic development strategy. The policy targeted the agricultural sector with the aim of making the country the largest exporter of rice. On the other hand, South Korean economic development strategies are based on the country’s industrial and economic sector. The growth of the South Korean industrial and manufacturing zone resulted into the country’s main economic stimulus. During the pre-SAP era, manufacturing and industrial sector accounted for nearly 35% of the country’s GDP. In addition, the sector accounted for 40% of the country’s workforce. This made South Korea to have the lowest unemployment index among southeastern Asian countries. Due to the significance of industry and trade, the main economic strategies focused on human capital. These developments promoted innovation, education, and social securities. The pre-SAP period also increased the number of Korean students in foreign universities and institutions of higher learning through government scholarships and financial aid. This led to drastic economic growth that made the country attain a GDP of 8% growth per year. In 1970, South Korea’s GDP was US$ 2.8 billion. This figure increased drastically to hit US$ 230 billion in 1988. Consequently, earnings from the industrial sector grew from 15- 30% of the country’s total GDP within that period. The outward-looking strategy of the 1960 was a significant strategy during the SAP period. In the post SAP era, Korea was a major exporter of manufactured goods and most of its economic policies were governed by the need to establish sustainable international trade and trade structures. However, emphasis on Seoul’s export development strategies resulted into economic imbalance between rural and urban societies. These strategies increased the number of factories in the Seoul and Gyeonggi region, which is the main industrial zone in the country. The industrial oriented economic development strategy has also led to the rise of other major industrial centers around the country. Shipbuilding and motor vehicle manufacture are the main factors that have contributed to the country’s economic prosperity. Other development strategies that contributed to South Korean economic prosperity in the pre SAP period were driven by the need to achieve self-sufficiency. South Korea is located in a militarized zone and, hence the country is faced with security difficulties this made the country to diversify its investment on technology and innovation driven economic development strategies. The post structural era is the global economic trends that characterized global economies in the period between 1980 and 1990. The post structural era was characterized by increased economic competitions and the need for countries to have strong indexes in international trade and Forex exchange. This is the main difference between the post structural era and the previous periods. Saudi Arabia entered into a new trend of economic development that focused on industrial development (Kechichian, 2005). This diversification was aimed at reducing the country’s dependence on imports and reduction of wastage. The main industrial products from the country include aromatics, polyethylene, ethylene oxide, ethylene, propylene chlorine and derivatives. Petroleum bi-products are the main raw materials for these products. This indicates the basic trend of post structural period economies, which resulted in a steady economic growth until 1990s. Other countries in the Middle East maintained a steady economic growth despite the disruption that resulted from the gulf war. For instance, Qatar suffered financial surpluses and speedy economic growth because of escalating global oil prices. The country was experiencing high levels of inflation that led to high property prices. This contributed to a slow growth in real estates and properly market. In addition, the country experienced a decline in its OPEC production quota. Countries that remained neutral during the gulf war such as Oman had an undisrupted economic growth that has progressed up to the late 1990s. Complexities within the UAE are the main cause of economic stagnation of the union during the early 1980s. However, the country experienced a major economic shift in the early 1990s resulting in an economic boom. UAE established itself as a significant commercial centre of the Middle East. Although the country does not have massive oil reserves similar to those of its neighbor, UAE plays a pivotal role in international trade. This has transformed the UAE into a modern economy similar to other economies in the western countries. Its political and religious neutrality are the main factors that have contributed to the rapid economic growth experienced in the country (Carrasco, 2005). On the other hand, Kuwait was already a flourishing economy before the beginning of the gulf war. The country was at the epicenter of the gulf war and hence its economy was the most affected. Economic Development in 1990 and Millennium Development Strategies The period between 1990 and 2000 is considered as the recovery phase. During this period, Middle East economies were recovering from devastating effects of the Gulf War. Economic stability of these countries depended on the level of influence because of the war and the country’s ability to adopt a smooth transition. Although Kuwait was at the epicenter of the gulf war, it experienced a smooth transition and success. This was greatly contributed by its close association with western countries and other demographic factors. Between 1990 and 2000, Kuwait experienced a 23.5% economic growth. This sharp increase was contributed by the steady increase in global oil prices and the country’s efforts to restructure its economic systems. Economic diversification is also a major factor that has contributed to a steady economic growth in the last decade (Kechichian, 2005). Similarly, Qatar has experienced a steady economic growth in the 1990-1980 periods. Qatar has done little in terms of import substitution as a means of developing and instead has focused on exports of primary goods. In a non-oil sector, dominated by financial services, which reached 62.1 billion and witnessed a growth of 6.9% in 2010, the financial sector of Qatar has been supported strongly by the Qatar's government banks. The republic of Oman also had a prosperous economic growth during the period. Omani citizens have been enjoying good living standards. Oman became a member of the World Trade Organization (WTO) in October 2000, and continues to amend its financial and commercial practices to conform to international standards. Oman’s government has contributed to the country’s economic prosperity through positive and constructive development policies. The new millennium came with new developments in Saudi Arabia and other Middle East countries. Millennium development goals focused on efficiency and economic sustainability. This implied that countries in the Middle East that relied on oil needed to restructure their economies in order to comply with millennium development strategies. The current needs to popularize renewable energy and environmental conservation has increased the vulnerability of oil dependent economies such as those of Saudi Arabia and other Middle East economies. However, this has not had a direct impact on the countries’ economies. The new millennium was also characterized by rise in technology particular the application of digital technology in the communication industry. This implies that economic prosperity depends on a country’s contribution to sustainable development and technology. Increasing demand for technology products such as cell phones, computers, flat screen TVs, and hybrid car has made South Korea to become a prosperous nation. The trend has had a similar effect on other economies in the region such as the Chinese and the Japanese economy. South Korea has also experienced a drastic reduction in unemployment due to the growth of its manufacturing sector. Currently, unemployment index stands at 23%, which is a significant figure compared to other developed countries in Europe. Between 2005 and 2006, Saudi Arabian economy increased by more than 4%. This resulted into $ 150 billion GDP at the close of the 2006 fiscal year. Conclusion Saudi Arabia has experienced a steady economic growth in the last two decades. The country’s oil dependent economy is subject to fluctuations in global oil prices. The 1970s oil boom induced steady economic growth and modernization, which has resulted into a decentralized economy. Unlike its neighbors (Kuwait, Qatar, Oman and UAE), Saudi Arabia has maintained a close association with western powers. Vietnam and South Korea have a non-oil based economies and therefore their economic growth and prosperity is independent of global oil prices and policies. In the last decade, South Korea has experienced speedy economic growth compared to Saudi Arabia due to economic shift and preference for sustainable economies. References Carrasco, E. R. (2005). The 1980s: The Debt Crisis and the Lost Decade. uiowa.edu. Retrieved from: http://www.uiowa.edu/ifdebook/ebook2/contents/part1-V.shtml. Kechichian, J. (2005). Political Participation and Stability in the Sultanate of Oman (Second Ed.). Dubai: Gulf Research Center Mankiw, G. (2011). Principles of Economics. New York: Sage. Thorvaldur, G. (2000). Natural Resources, Education and Economic Development. Retrieved from http://rafhladan.is/bitstream/handle/10802/1937/w0010.pdf?sequence=1 Appendix Read More