Interview Part 4
GCC Economic Outlook 2011
GCC Opportunities and Risks
1. Can you give an overall assessment and outlook for the GCC
2010 was challenging for the GCC and especially for the UAE, but
it was nevertheless a year of economic recovery. I estimate 2010 growth at about
3 to 4% and expect a growth rate of 4 to 5% for 2011 as a whole.
Growth in the GCC in 2011 will be driven by energy,
infrastructure, private sector
investments and trading. A global recovery will drive the oil prices higher,
thus having positive impact on the region. However, oil production in most of
the GCC is unlikely to increase significantly, as they are bound by OPEC quotas.
The two exceptions are Oman and Bahrain who are non-members.
There is an
undercurrent of cultural changes in the Middle East region in general driven by
the globalization of media and the Internet. So, the GCC region could see more
demands to move faster into more democratic forms of governments. Like all
countries before them, they will have to go through a learning curve and
of political challenges before their socioeconomic system stabilizes. Smart
leaders will anticipate these changes and initiate gradual reforms to avoid
political instability and economic problems.
Geopolitically, the region should
work with the US to avoid war with Iran. The damage to the population of the
region, oil production and the world economy cannot be controlled.
2. What is your economic outlook for Qatar?
In 2010 Qatar was the fastest growing economy in the world.
Qatar’s oil and gas sectors are the largest contributors to its GDP, accounting
for a total 50% in 2010. Government services made up about 11% of GDP, the
construction sector accounted for about 10% and manufacturing made up 5%. Heavy
investment in liquefied natural gas (LNG) production capacity and increases in
LNG production over the last couple of years have been the main drivers Qatar's
robust growth. The private sector has limited scope to drive growth.
Infrastructure and diversification spending will be keys over the next five
years. The win of the world cup hosting bid for 2022 is a strategic event that
can boost the inspiration and perspiration in Qatar's economy and its standing
in the world. Qatar is one of the few countries where the government is the main
driver behind the economic growth, as opposed to the private sector.
3. What is your economic outlook for Bahrain?
Bahrain is investing in its production capacity and can get
benefits from higher production. Like Dubai, Bahrain has limited oil reserves
and will be focusing on diversification of its economic development. Bahrain has
positioned itself as a regional financial, business and tourism hub, but needs
to invest more to compete with Dubai. The financial sector, which contributes
about 25% of GDP, suffered a downturn during the crisis and is still on way the
way to full recovery. However, confidence should pick up, and I expect the
private sector to drive much of the recovery. On the labor front, Bahraini's
nationals hold about 15 to 20% of private-sector jobs versus about 80% of
public-sector jobs, but this imbalance will persist amid continuing mismatches
in skills and type or quality of labor. An education policy to develop
entrepreneurship and small business enterprises will lift the productivity of the economy
and the standards of living of its population and solidify the country's
socioeconomic stability. Also, the policies of Bahrain as
a business friendly destination that allows workers to move between companies
without the employer’s consent will improve its position as a competitive
regional services hub.
4. What is your economic outlook for Saudi Arabia?
I expect Saudi Arabia’s economic growth to be at about 4% in
2011 driven by the growth in capital investments in infrastructure and
hydrocarbon sector, both downstream and upstream, as well as by the development
and diversification related spending. About $500 billion is earmarked for
infrastructure investments by 2020. I expect a moderate growth in private credit
boosting confidence in the private sector.
5. What is your economic outlook for Kuwait?
Kuwait's oil constitutes more than 90% of its total revenues.
The $100 billion plan approved in February 2010 under Kuwait Vision 2035 program
is a first step towards positioning Kuwait as a trade and financial hub. They
are a bit late behind the UAE and Bahrain, but their rich oil resources can help
them quantum leap the competition if they execute the plan properly. Their
development budget can benefit from higher oil prices and at the same time is vulnerable to oil-price shocks. Diversification projects should be a more
urgent priority. The achievement of their goals can be delayed because of
political issues and budget waste. Kuwait Stock Exchange (KSE) needs better
governance to boost trust and growth in private sector investments and
6. What is your economic outlook for UAE?
The economy of the emirate of Abu Dhabi is highly dependent on
hydrocarbon sector which makes about 60% of the GDP. According to Abu Dhabi's
development plans, their goal is to increase the GDP contribution of its non-oil
sector to 64% by 2030. Investment in non-oil projects will be critical to
achieving this goal. Several projects were either delayed or cancelled in 2010.
As for the emirate of Dubai, I expect the real estate sector to
decline by at least another 20%. The disclosed Dubai and its state-owned
companies carry about $130 billion of debt, of which $50 billion is owed by
Dubai World and $30 billion by Dubai Government. ICD and Dubai Holding carry the
remaining $50 billion. The government allocated about 20% of the budget to
developing and completing previously approved infrastructure projects. Dubai
faces about $30 billion of maturities in 2011-12; the agreement to restructure
part of Dubai’s debt has allowed Dubai to regain access to international markets
and eased liquidity pressures.
In the medium term, the Dubai government will focus on debt
management, not allowing it to support strong economic growth. I would not be
surprised if Dubai issues bonds in the midterm. The economic recovery
will be driven by logistics, retail and hospitality sectors. I expect US
interest rates to remain low for the next two years, together with the Fed’s
decision to proceed with further quantitative easing, which will improve the
attractiveness of GCC bonds to investors looking for yield.
7. In the GCC, Dubai was hit the hardest by the global
financial crisis. How can they recover?
I visited Dubai last month and I saw the world's most innovative
real estate developments. They quantum leaped over the US, Europe and Asia in
amazingly short period of five to ten years. There are many lessons to learn
from Dubai in the field of real estate planning and development. However, when I
drove on Sheik Zayed Road (the heart of the new real estate development) at
night, I noticed the occupancy of many buildings was at about 30%. With more buildings being completed and more
inventories coming to the market, the supply and demand mismatch will result in
significant downward pressure on the real estate prices.
with labor and business laws and the rising cost of doing business in Dubai does
not help the real estate sector or Dubai's economic recovery.
The best strategy to attract strong capital inflow, accelerate
the recovery, reverse the real estate decline, and supercharge the economy is to
implement several new policies at the same time; (1) reduce the restrictions on
foreign labor and movements; more population equals more occupied rental space (2) reduce
business incorporation costs and cost of doing business thus attracting
more investors and entrepreneurs (3) grant investors and rich expats permanent
residence cards. Investors and rich expats are more likely to invest what they
earn in places where they and their families can live (4) relax student and
tourist visa requirements to bring in more people and more income (5) invest
further in the quality of the financial institutions and improve governance
standards and transparency. The establishment of Dubai International Finance
Center (DIFC) and the Hawkamah (governance) Institute is a good step in the
direction, but requires more support (6) create a government bank to lend to the
distressed assets and real estate development at lower rates to reduce
bankruptcies and if those investors fail to pay their loans, the property
becomes owned by the government at a bargain. (7) do not participate or get
dragged into regional political animosities that can escalate to physical
conflicts threatening the existing real estate investments, trade, logistics and
tourism that are at the heart of Dubai's economy.
As for the recovery timeframe, the faster they implement these
policies, the faster they will recover. If they wait, they will lose to other
8. Should GCC member states think of an alternative or a
euro-like common currency for the region?
It would be one of the best things their leadership could do for
their people. However, the common currency alone is not the answer to creating
wealth, prosperity and power. There has to be significant reforms in labor and
residency laws, taxes, capital, education, privatization, and corporate
governance. The creation of a Gulf Union (GU) is even better than a common
currency. While I understand the desire of the Gulf countries
to keep their population small so they can have bigger share of oil revenues
in the short term, it is in their best interest to think in long and global
terms. The advantages of unification and expansion outweigh the advantages of
separation and protection. The oil will not last forever, so policy makers must
think about starting early to build a sustainable socioeconomic system based on
diversified economic resources and human capital. Bahrain and Dubai's
leaderships are leading the GCC in that vision; their policies such as
attracting foreign investments, allowing foreign ownerships and relaxing labor
movement are steps in the right direction. Transcending the tribal and the
geographic borders to establishing a Gulf Union is in the best interest of all
of the involved states. UAE is one example of multiple states working together
for the betterment of each other.
9. What is your forecast for oil prices in 2011?
Oil prices could cross the $100 mark with increased demand
driven by the global economic recovery. If there is a strike by Israel on Iran's
nuclear sites or a war between US and Iran, the prices could cross $150. This
would not benefit the GCC, since the production facilities will be damaged.
10. What is the likelihood of a conflict with Iran?
I'm an economic researcher not a political analyst. With that
disclaimer in mind, from an economic perspective, a war with Iran could be
devastating not only to the region but to the world causing a severe global
recession. If Israel strikes Iran in 2011 or if the war lobby wins the US
elections in 2012 this would be the catalyst for a global energy crisis followed
by US economic depression and currency crisis. If you thought the economic
crisis caused by the financial sector was hard on the world, you have not seen
anything compared to the inflation pains and socioeconomic challenges caused by
rising energy prices. The best way to get rid of the threat of a nuclear Iran is
for Israel to make peace with its neighbors.
CEO Q Interview
Global Economic Outlook 2011
US Economic Outlook 2011
Global Investment Outlook 2011
GCC Economic Outlook 2011
Lessons from the Global Economic
About Med Jones
Med Jones is the president of International Institute of Management. He is recognized as one of the few experts who predicted the US financial and economic crises of 2008. In January 2007, he challenged the US President's State of the Union Address, Federal Reserve Chairman and world economists. His predictions were the most comprehensive and accurate
among the experts who warned about the crisis.
The original warnings and predictions can be found at:
Jones is a non-partisan technocrat. His predictions are followed by Democrats, Republicans, and Independents.
He can be reached at