The Economic Boom in Qatar, UAE, and Saudi Arabia - Essay Example

Economic Assessment in Qatar, UAE and Saudi Arabia Name Course Tutor Unit Code Date Table of Contents Table of Contents 1 Preface 2 Qatar 3 Saudi Arabia 6 United Arab Emirates 8 References 11 Preface Qatar, the United Arab Emirates (UAE) and Saudi Arabia have grown to be economic giants in the Middle East. Below is an in-depth overview of key economic activities in these countries along with their economic structure especially the Oil &Gas sector that is their main economic driver. Other sectors of the economies will as well be analysed given the current need for diversification pulling away reliance on oil and gas revenues. Qatar Overview In the onset of the 20th century Qatar’s main economic activity was fishing and pearl hunting. However, in the 1940s, the country that was then regarded as one of the poorest nations globally discovered oil which overturned the country’s economy making it among the richest nations today. Qatar is a small country that has been under the Thani family for close to 150 years. The country has a small population of 1.7 million. Qatar has shown strong economic growth in the past few years due to high real GDP growth rate driven mainly by oil and gas. The government of Qatar is at the moment encouraging diversification as it seeks to turn the country into a global centre for tourism, finance and education (Schwab, 2008). Oil & Gas Industry Oil and gas is the main economic driver accounting for over 50 per cent of Qatar’s GDP, 70 per cent of government income and 85 per cent of total export income. The sector has brought macroeconomic development in the country by raising the per-capita income and lowering unemployment significantly. The existing oil reserves of over 25 billion barrels are expected to last the country for a period of more than 57 years. Qatar has the third largest oil reserves globally that are well above 25 trillion cubic meters representing close to 14 per cent of the world’s reserves and 61 per cent of total GCC natural gas reserves. Incomes from the sector are expected to drive huge infrastructure projects that include the Qatar-Bahrain causeway and Qatar’s metro plan. However, the country is from time to time impacted by global fluctuations in oil and gas. It is because of this that the government has encouraged diversification. For instance, revenues from oil and gas in the second half of 2009 declined by 42 per cent as compared to the same period in 2008. Banking Sector Qatar’s banking sector is strong apart from a dangerous increase in the non-performing loans and deflation of asset prices. This has called for a tightening of credit standards which contributed to a slowdown in credit growth in 2007 and 2008 (Oxford Business Group, 2009). Even though, the domestic credit market has posted a 15 per cent year-on-year growth. The $10 billion sovereign bond has boosted government spending thereby uplifting consumer confidence and offering credit market opening. Stock Market The stock market had a difficult start in 2010 but it rallied from the 1st quarter lows following a rebound in oil prices. With increasing government revenue from oil and gas, investor confidence in the stock exchange has been rising gradually. Trade Activities In the past decade, Qatar has experienced immense growth in trade activities with the United States. The rate has gone up incredibly by around 200 per cent over this period. US exports to Qatar include machinery for oil and gas drilling, cars and electronics. Tourism Following the government’s flourishing economic reforms focusing on diversification; US investors have taken full advantage of the country’s booming tourism and telecommunication industry. High quality American furniture has found a ready market in the hotel industry. Also, IT and telecommunications equipment from the United States are on high demand given Qatar’s modernization (Schwab, 2008). Saudi Arabia Overview The Kingdom of Saudi Arabia, commonly known as Saudi Arabia, is the largest Arab country of the Middle East with an estimated population of 28 million, and its land area size in the region of 2,149,690 square kilometres. The current kingdom was founded by Abdul-Aziz bin Saud, whose efforts began in 1902 when he captured the Al-Saud’s ancestral home of Riyadh, and culminated in 1932 with the proclamation and recognition of the Kingdom of Saudi Arabia, though its national origins go back as far as 1744 with the establishment of the First Saudi State. Saudi Arabia's government takes the form of an Islamic absolute monarchy. Economic Status Quo Saudi Arabia has a robust economy which is primarily driven by the production and exportation of oil (United Nations, 2008). It is the largest producer of oil and natural gas in the world which are principally is controlled by Armco, a government-owned company which was nationalized in 1988 (Halman, 2008). Even with the threat of global warming and the unpredictable changes in oil prices, Saudi Arabia seems unable to diversify its economy. Unlike Qatar which has made inroads into the tourism and telecommunication industry, Saudi Arabia is heavily dependent on oil revenues and this trend is unlikely to change. Foreseeable Economic Plan The Royal Family has instituted changes aimed at making Saudi Arabia more diversified economically thus reducing reliance on oil and gas that are more vulnerable to global variations in oil and gas prices (United nations, 2008). The government put in place an ambitious government plan aimed at achieving steady GDP growth, boost the role of the private sector in the economy and create more jobs (Halman, 2008). However, this could be limited by the huge oil and gas incomes that override other sectors as well as individual interests of the Royal Family. Living Standard Surprisingly, Saudi Arabia has a much lower level of per capita income than UAE and Qatar yet it gains better oil revenues. Regardless of its big population, the country’s national living standards have been declining even as the oil revenues are increasing. The Saudi citizens feel that much of the country’s oil wealth does not go back to them (Great Britain, 2008). Other Economic Sectors Besides the oil and gas industry, there is an agricultural sector in the Saudi economy. It employs 6% of the population and it accounts for 4% of the GDP. The biggest obstacle it faces is the lack of water and fertile soil. The principal crop is wheat but further cultivation is hindered by the practice of using 75% of the country’s arable land for low-grade grazing of livestock (Zayd, 2006). Banking Sector Saudi’s banking industry is relatively lucrative and unwavering amid tight regulation. The country’s largest bank, the National Commercial Bank, is state-run and operates under the principles of Islamic banking. Foreign banks first entered the sector in 2000 and some boundaries prohibiting entry of more players are being abolished. Stock Market The boom in the country’s economy over the last 3 years has increased public interest and participation in the stock exchange. The most popular investment vehicles are stocks, bonds, mutual funds and Initial Public Offers. The Saudi stock market is the leading in the Arab world, with a total market capitalization of over US$650 billion (Perry, 2009). Tourism Sector The hajj is the leading tourist attraction in Saudi Arabia which attracting above 2 million pilgrims. The government has been trying to expand the tourism industry beyond the hajj. A case in point is where the hajj pilgrims are granted visas which allow them to travel to other destinations in the kingdom, unlike earlier times when they were constrained to primary religious cities. The Tourism Higher Authority anticipates that the country will have 45.3 million tourists by 2020 (Zayd, 2006). United Arab Emirates Overview The United Arab Emirates (UAE) is a federation situated in the southeast of the Arabian Peninsula in Southwest Asia on the Arabian Gulf, bordering Oman and Saudi Arabia and sharing sea borders with Iraq, Kuwait, Bahrain, Qatar and Iran. The UAE consists of seven states, the Emirates, which are Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Quwain, Ras al-Khaimah and Fujairah. The capital and second largest city of the United Arab Emirates is Abu Dhabi. It is also the country's centre of political, industrial, and cultural activities. Prior to 1971, the UAE was known as the Trucial States or Trucial Oman, in reference to a 19th-century truce between the United Kingdom and several Arab Sheikhs. The name Pirate Coast was also used in reference to the area's emirates from the 18th to the early 20th century. The Economy The United Arad Emirates has an open economy with a high per-capita income as well as a big annual trade surplus. The GDP per capita is at present the 14th globally and 3rd in the Middle East, as measured by the CIA World Fact book. The International Monetary Fund ranks it 17th in the world. The Emirate’s economy, especially Dubai, was roughly affected by the Global Financial Crisis of 2008/2009. In 2009, the country's economy went down by 4 per cent. Unlike Saudi Arabia and Qatar, the UAE is does not heavily depend on oil and gas, which account for just 35.7 per cent of the economy. Income from the non-oil sectors presently stands at about 60.3 per cent with the manufacturing sector posting the greatest growth (Noack, 2008). Expatriates who came to work in the UAE do take credit for the recent economic boom. They account for 80 per cent of the 4.1 million people in the emirates (Greenaway, 2008). One reason why expatriates are attracted to the UAE is there is no income tax and unlike other Arab countries, it’s considered to be more “liberal” in terms of tolerating western cultures. Real Estate Sector The real estate sector has experienced a boom in the past few years. Dubai has been lauded for initiating some of the most grand construction projects in the developed world. On the whole, the real estate sector in the UAE is growing rapidly. Luxury hotels and skyscrapers are a common the coastal areas and the central business districts. The real estate along with business sector account for 7.4 per cent but the sector was affected by the 2008/2009 global economic crisis. The emirate of Dubai was especially hit hard with the real estate mogul, Dubai World, citing difficulty in servicing its loans. Oil & Gas The UAE approximately has 97.8 billion barrels of oil reserves or slightly less than 8 per cent of the world total reserves (Dumper et al, 2007). At the current production rates, UAE is guaranteed of producing oil for the upcoming 100 years given that the global demand rotates around future estimates. Banking Sector The banking industry has been one of the biggest beneficiaries of the economic boom. There are currently 21 local banks and 25 foreign banks operating in the UAE. After the sharp increase in oil prices in 2008, the UAE banks were well capitalized to handle any incidences of default brought about by the global financial crisis. Tourism Tourism plays a key role in the UAE government's approach to keep up the flow of foreign cash into the Emirates. Dubai attracts tourists is mainly because of shopping as well as its ancient and modern attractions. As of 2007, Dubai was the 8th most visited city of the world. Dubai is expected to accommodate over 15 million tourists by 2015. Dubai is the most populous emirate of the seven emirates of United Arab Emirates. It is distinct from other members of the UAE in that a large part of the emirate's revenues are from tourism. Dubai has been called the "shopping capital of the Middle East". Dubai alone has more than 70 shopping malls, including the world's 7th largest shopping mall, Dubai Mall. The city draws large numbers of shopping tourists from countries within the region and from as far as Eastern Europe, Africa and the Indian Subcontinent. While boutiques, some electronics shops, department stores and supermarkets operate on a fixed-price basis, most other outlets consider friendly negotiation a way of life. References Dumper, M, Stanley, B.E. (2007). Cities of the Middle East and North Africa: A historical encyclopaedia. ABC-CLIO. 139-147 Great Britain Parliament, House of Lords, (2008). Economic Impact of Immigration: 1st Report of Session 2007-08. The Stationery Office. 2: 510-514 Greenaway, D. (2009). The World Economy: Global Trade Policy 2008. John Wiley and Sons. 64-71 Halman, L. (2008). Changing values and beliefs in 85 countries: trends from the values surveys. Brill. 86-92 Noack, S. (2008). Doing Business in Dubai and the United Arab Emirates. Green Verlaq. 22-29 Oxford Business Group. (2008). The Report: Qatar 2008. Oxford Business Group. 189-204 Perry, Marvin, et al. (2009). Western Civilization: Ideas, Politics and Society. 9th edn, Houghton Mifflin. 18-26 Schwab, K. and Porter, M. (2008). 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