Economy of the Middle East

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Satellite image of the Middle East
Middle East economic integration as a means to sustain peace.

The Economy of the Middle East is very diverse, composed of Armenia, Azerbaijan, Bahrain, Cyprus, Egypt, Iran, Iraq, Israel, Jordan, Kurdistan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, and Yemen. The individual economies range from hydrocarbon exporting rentier economies to government led socialist economies to free market economies.

Collectively, the region is best known for producing and exporting oil. The oil industry significantly impacts the entire region, both through the wealth that it generates and through the movement of labor. Most of the countries in the region have undertaken efforts to diversify their economies in recent years, however. In the report, Science-Metrix says the number of scientific publications listed in the Web of Science database shows that the standard growth in the Middle East, particularly in Iran and Turkey, is nearly four times faster than the world.[1]

Statistics[edit]

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An International Monetary Fund analysis of growth determinants indicates that greater integration with international markets could provide a substantial boost to income and gross domestic product (GDP) growth.[2]

Prospects for the MENA Region[3]
MENA Region 2009 2011 2012
Real GDP growth 2.8 3.6 4.5
Real GDP growth (PPP) 2.7 3.5 4.5
Exports (change %) -9.5 2.6 5.2
Imports (change %) 1.2 4.9 6.6
CA balance (% of GDP) -0.1 1.5 0.9
Rank Country GDP Per
Capita[4]
GDP (PPP)
Total ($US B)[5]
GDP (Millions of US$) 2014
1 Israel Israel $35,200 $281.9 296,100
2 Iran Iran $18,100 $876 416,490
3 Kuwait Kuwait $71,900 $150.2 172,608
4 United Arab Emirates United Arab Emirates $67,900 $200.4 399,451
5 Oman Oman $46,700 $69.43 77,677
6 Bahrain Bahrain $50,700 $22.85 33,862
7 Saudi Arabia Saudi Arabia $55,200 $581.3 746,248
8 Turkey Turkey $24,900 $1189.9 798,332
9 Lebanon Lebanon $18,500 $46.03 50,028
10 Qatar Qatar $127,700 $101.2 210,109
11 Egypt Egypt $12,600 $470.4 286,435
12 Jordan Jordan $12,300 $33.06 35,878
13 Syria Syria $2,900 $102.5 77,460
14 Iraq Iraq $17,900 $249.4 223,508
15 State of Palestine Palestinian territories $4,300 $ N/A N/A
16 Yemen Yemen $2,400 $58.2 43,229

According to Bayt.com Middle East Consumer Confidence Index, March 2015: While close to a quarter (24%) of respondents believe that their country’s economy has improved relative to the past 6 months, over one third (35%) think it has gotten worse. Those in Syria were the most negative about their country’s economy with 83% of them thinking it has receded as compared to 6 months prior.

38% of respondents expect the economy in their country to improve in the next 6 months, while a quarter expect it to get worse. Overall, only 7% believe that present business conditions are ‘very good’; 24% think business conditions are ‘good’.

Half of respondents expect business conditions in their country to improve in the next year.

Respondents from Syria tended to be more pessimistic about future business conditions with about half of them (49%) thinking it will get worse.[6]

By country and territory[edit]

Bahrain[edit]

Central Manama

Bahrain has a per capita GDP of $50,700.[7] Bahrain has the Persian Gulf's first "post-oil" economy because the Bahraini economy does not rely on oil.[8] Since the late 20th century, Bahrain has heavily invested in the banking and tourism sectors.[9] The country's capital, Manama is home to many large financial structures. Bahrain has a high Human Development Index (ranked 48th in the world) and was recognised by the World Bank as a high income economy. Bahrain has expanded its industrial capacity to include Aluminum production and signed a Free Trade Agreement with the United States in an effort to expand its export base. Bahrain has also positioned itself as a strong player in Islamic banking in an effort to expand beyond resource exports and into a greater role in the international service industry.[10]

Lebanon[edit]

Beirut is not only famous for its glamorous nightlife, religious and hospitalization tourism, it also serves as a financial center and famous for its Bank Secrecy that led to calling it "The Switzerland of The Middle East".

The GDP per capita of Lebanon is $16,000 in 2012 US dollars, that makes Lebanon the highest in GDP per capita after 6 GCC state members, and Israel, as per the CIA world fact book. However, the economy of Lebanon has been severely inhibited by internal sectarian conflict and conflict with Israel. The government has incurred significant debt attempting to rebuild the national infrastructure following the Lebanese Civil War. Through foreign assistance the nation has made strides to rebuild, but still remains largely underdeveloped. Currently its trade deficit is nearly $8 billion, its external debt is $31.6 billion. Lebanon's economy is being rebuilt, especially by the remarkable growth of its industry (including cement) and services sector which presents more than 70% of the country's economy. Beirut is regaining its place as a center of the Middle East as foreign investments are making a huge comeback in all sectors and businesses and making huge profits, which will encourage more capitals investments.[11]

Egypt[edit]

Tourist visiting the ancient Egyptian temple Abu Simbel.

Egypt derives a great deal of its foreign exchange from tourism. Consequently, most of its labor force is devoted to the service sector.[12] Agriculture is also a large part of the Egyptian economy. The Nile River provides Egypt with some of the most fertile land in the Middle East. It produces food for consumption and export as well as cotton for domestic and foreign textile production. Egypt's other great resource is the Suez Canal. Roughly 7.5% of global sea trade transits the canal providing Egypt revenues in excess of $3 billion annually.[13] Egypt's industrial base dates back to the 1960s, when the nation undertook import substitution industrialization policies.[14] The inefficiencies of the state-run program have led the government to begin a privatization program and as a result Egypt enjoyed substantial GDP growth in the first decade of the 21st century.[12] It has also taken advantage of Qualifying Industrial Zone to expand trade relations with the United States. Despite these developments Egypt remains an underdeveloped country with a per capita GDP of $5,500.[12] Egypt would be the first ever electronic Egyptian Commodities Exchange in the MENA region to facilitate the well being of its small farmers and supply of products at reasonable prices abolishing the monopoly of goods.[15][16]

Iran[edit]

Iran has one of the largest economies in the Middle East. It is the world's 18th largest by PPP. Iran's major industries are largely state owned. The nature of the Iranian state-owned enterprises has led to a degree of inefficiency. Iran ranks 69th out of 139 in Global Competitiveness Report.[17] Iran has been able to subsidize inefficient industry through large oil revenues and maintain respectable growth rates. The nature of the state-driven economy has led to significant 'brain drain' in recent years as educated Iranians seek opportunities abroad. Consequently, Iran has begun a privatization effort in order to stimulate trade in accordance with its ongoing five-year plan as well as an ambitious economic reform plan.

The most important advantage that Iran's capital market has in comparison with other regional markets is that there are 40 industries directly involved in it. Industries such as the automotive, telecommunications, agriculture, petrochemical, mining, steel iron, copper, banking and insurance, financial mediation and others trade shares at the stock market, which makes it unique in the Middle East.[18] Iran has a high potential of becoming one of the world's largest economies in the 21st century.[19]

Iraq[edit]

Oil fire at the Rumaila oil field

Nearly 30 years of fighting, against Iran in the 1980s and the United States since 1991, has had a detrimental impact on Iraqi economic growth. Oil production remains Iraq's chief economic activity. The lack of development in other sectors has resulted in 18%–30% unemployed and a depressed per capita GDP of $4,000.[20] Reconstruction aid has helped to bolster the nation's infrastructure, however, an ongoing insurgency has handicapped economic recovery.

Israel[edit]

Israel's national leadership established a socialist economy when Israel was established in 1948. The purpose of this approach was to establish economic self-sufficiency, particularly agriculturally, in the face of hostile neighbors and to provide jobs for a population rapidly expanding through immigration. The socialist nature of the economy created a great deal of inefficiency which the government was able to offset through foreign aid, first in the form of West German Holocaust reparations then through direct aid, primarily from western nations.

Following the Yom Kippur War Israeli defense spending rose dramatically, exposing the weaknesses of the state-run economy.[21] The result was rampant inflation that led Israel to recall the lira in 1980 and issue the sheqel. This move did not sufficiently curb inflation and consequently the sheqel was recalled in 1985 in favor for the Israeli new sheqel, a move implemented together with a comprehensive economic stabilization program which stemmed inflation and set the stage for high growth in the 1990s. Israel had also undertaken a privatization effort beginning in the late 1970s. The economy received a boost in the early 1990s with the arrival of several hundred thousand immigrants form the former Soviet Union.[22] As a significant number of the immigrants were highly educated, Israel accelerated its privatization in order to encourage the high-skilled workers to stay. The new high-skill labor also attracted a lot of foreign direct investment. Israel's growth over the past decade has been commensurate with western developed nations as is its GDP (PPP) per-capita which is about $35,000/year – the highest of all the non natural resources dependent countries in the Middle East. It also has the highest economic complexity index of all the countries in the Middle East. Israel is described as "Very Highly Developed" on the UN's Human Development Index, ranking 16th among 187 world nations and highest in the Middle East in 2012.

In September 2010, Israel joined the OECD, which praised Israel's scientific and technological progress and described it as having "produced outstanding outcomes on a world scale."[23] Indeed, much of the growth in the country's economy over the past couple of decades is attributable to the software, biomedical, electronics, telecommunications and other high-technology sectors as the percentage of Israelis engaged in scientific and technological inquiry, and the amount spent on research and development (R&D) in relation to gross domestic product (GDP), is among the highest in the world.[24]

Jordan[edit]

View of Aqaba.

Jordan operates a rentier economy based largely on foreign aid, investment, and remittances. Despite having the one of the best education centers and the best healthcare in the Middle East,[25] Jordan heavily depends on its highly skilled workforce in the oil-rich Persian Gulf to send back money to help support thousands of Jordanian families. Consequently, its economic fortunes are tied to events in the international community. Although the standard of living in Jordan is significantly higher than other countries with similar incomes, many Jordanians opt for a job abroad because of soaring costs of living and high unemployment in their native country. Jordan is dependent on those remittances which have accounted for nearly 20% of GDP since 1975.[26] Jordan's dependence has had detrimental consequences. Following Iraq's 1990 invasion of Kuwait hundreds of thousands of Palestinians were expelled from other Arab nations. For Jordan this resulted in the significant loss of remittance revenue.[27]

Although the 2003 Iraq War brought detrimental consequences to Jordan's economy at first, it gave Jordan a huge boost in trade and investment with wealthy Iraqis re-settling in Jordan; Amman become a transit point for business and trade bound to Iraq. Jordan consequently became known as the "Gateway to Iraq" and later the "Gateway to the Middle East". Jordan's pro-business and pro-Western government has created incentives and free trade zones to spur further economic growth.

Jordan's private sector growth has been given higher priority in recent years. By taking advantage of Qualifying Industrial Zones manufactured exports have increased, led largely through the growth of a textile industry.[28] Jordan's shift to a free market economy has brought unprecedented amounts of investments into the economy. Jordan has one of the freest economies in the Middle East due to several key economic reforms in the past few years. Tourism, ICT, trade, and future oil shale and uranium exports will form the backbone of Jordan's economy.

Kuwait[edit]

Headquarters of Kuwait Petroleum Corporation (KPC) in Kuwait City.

The Kuwaiti currency is the highest-valued currency unit in the world.[29] Kuwait has the second-most free economy in the Middle East.[30] 57% of Kuwait's GDP comes from non-oil industry (mostly business services, manufacturing, retail trade, financial institutions, construction, transport and real estate).[31] Petroleum accounts for 43% of GDP, 87% of export revenues, and 75% of government income.[31][32] Kuwait also exports plant fertilizers.[33] The per capita GDP is $40,700.[34] As part of a diversification plan the Kuwaiti government has invested its revenues and maintains a sizable sovereign wealth fund. These investment currently account for more than half of Kuwait's GDP.[35] 60% of Kuwait's work force are non-Kuwaitis.[34]

Oman[edit]

The Central Business District (CBD), in Muttrah.

Oman has several different industries, including crude oil production and refining, natural and liquefied natural gas (LNG) production; construction, cement, copper, steel, chemicals and optic fiber. Oman also has substantial trade and budget surpluses. 55% of Oman's government revenues comes from the non-oil industry. Petroleum accounts for 64% of total export earnings, 45% of government revenues and 50% of GDP.[35] By 2020 Oman hopes to reduce oil revenue to just 9% of its income.[36] Along with that plan the country hopes to move away from rentier economics and employ its citizens in the labor market and reduce reliance on expatriate labor.[36] To take its first steps in economic independence it has signed a Free Trade Agreement with the United States and is seeking to do the same with the European Union, China, and Japan.[36] It is currently maneuvering itself into the re-export and heavy manufacturing markets.

Palestinian Territories[edit]

Bank of Palestine, Ramallah

The economy of the Palestinian National Authority has been severely truncated by extensive corruption among Palestinian Authority officials, a heavy dependence on foreign aid, and the ongoing conflict with Israel. Production has dropped since the beginning of the Second Intifada in 2000. The Gaza Strip has been blockaded by Israel and Egypt since June 2007 after Hamas took control of the Palestinian territory in the course of a conflict with rival Palestinian group Fatah. In May 2010, the UN Office for the Coordination of Humanitarian Affairs stated that the formal economy in Gaza has collapsed since the imposition of the blockade.[37] The West Bank has fared significantly better since the split in the Palestinian power structure and Fatah took power in the West Bank (the GDP per capita of the West Bank was more than double that of the Gaza Strip in 2015).[38] Still the Palestinian Authority is nearly entirely dependent on foreign aid. Collectively the Palestinian territories had a per capita GDP of $4,300 in 2014.[39]

Qatar[edit]

Qatar currently enjoys the regions highest per capita GDP at $101,000.[40] It has derived its wealth from exploiting its natural gas reserves. With the revenues from its hydrocarbon industries Qatar has established a rentier economy. Qatar has also established the largest per capita sovereign wealth fund in the world. With a population under one-million people the government has not found it necessary to diversify its economy.

Saudi Arabia[edit]

The Kingdom Tower in Riyadh, the capital city

Saudi Arabia has 20% of the known oil reserves in the world. With its oil they have a national GDP of $657 billion and a per capita GDP (PPP) of 25,700 .[41] With this revenue stream the country has become the largest rentier economy in the world. As the oil wealth grew so too did the civil service. It grew from 37,000 in 1962 to 232,000 in 1981.[35] Further, as Saudi Arabia's civil service grew so too did its reliance on foreign labor which currently stands at 5.5 million or about one-third of its working age population.[41]

Currently about 40% of Saudi Arabia's population is under the age of 15.[41] This has led the government to accelerate investment in education and infrastructure in an effort to ensure jobs for the growing population and alleviate a chronically high unemployment rate. The state has announced plans to build six 'economic cities' in order to diversify its economy.

Syria[edit]

Stemming from a 1960s nationalization effort most Syrian economy is run by the government.[42] However, owing to the inefficient public sector, significant domestic subsidies, and considerable intervention investment in Lebanon inflation and external debt have become significant problems.[43] Consequently, the Syrian government has undertaken modest privatization reform in preparation for the opening of the Damascus Stock Exchange in 2009.[44] Modest oil production and an agriculture sector lead Syria's production while most of its employment is in the service sector. Its per capita GDP stands at $4,900.[44]

Turkey[edit]

Maslak financial district, Şişli, Istanbul

Turkey is the largest economy in the Middle East followed by Iran, Saudi Arabia and UAE. Turkey has the world's 15th largest GDP-PPP[45] and 15th largest Nominal GDP.[46] The country is a founding member of the OECD (1961) and the G-20 major economies (1999). Turkey has been part of the EU Customs Union since 31 December 1995.

Turkey is often classified as a newly industrialized country by economists and political scientists;[47][48][49] while Merrill Lynch, the World Bank and The Economist magazine describe Turkey as an emerging market economy.[50][51][52]

Turkey is restructuring its economy in an attempt to gain full European Union membership. It began this policy in the early 1970s, abandoning its previous import substitution industrialization policy.[53] As privatization has taken hold in Turkey it has brought with it significant foreign direct investment. Additionally, the Baku-Tbilisi-Ceyhan pipeline has brought revenue to Turkey and enabled it to share some of the regional hydrocarbon wealth. Turkey's economy is currently led by its automobile, agricultural and textile sectors. It has a per capita GDP of $11,200, supplemented by some 1.2 million Turks working abroad.[54]

United Arab Emirates[edit]

The economy of the United Arab Emirates is the second largest in the Arab world (after Saudi Arabia), with a gross domestic product (GDP) of $377 billion (AED1.38 trillion) in 2012. The United Arab Emirates has been successfully diversifying the economy. 71% of UAE's total GDP comes from non-oil sectors.[55] Oil accounts for only 2% of Dubai's GDP.[56] The UAE is also making an effort to attract foreign direct investment by offering 100% foreign ownership and no taxes.[57] Tourism is one of the main sources of revenue in the UAE.

Yemen[edit]

Yemen has plagued by chronic economic mismanagement. With 85% unemployment, the nation relies heavily on expatriate remittances.[58] The reliance on foreign labor markets proved disastrous following the 1991 Persian Gulf War when Saudi Arabia and Kuwait expelled Yemeni workers and curtailed aid to the country in response to its support of Iraq.[28] Most of Yemen's GDP comes from its limited oil production. The bulk of its labor is involved in agriculture where its primary cash crop is khat.

Job Index[edit]

The Middle East Job Index Survey conducted by Bayt.com in February 2015 states that: Overall, the Job Index has decreased by one point since the last wave of August 2014. In the UAE, the Job Index has decreased by four points since August 2014.

Three-fifths of working respondents in the MENA state that they will be hiring in the next 3 months. Plans to hire in the next 3 months are higher in the GCC, with 37% ‘definitely’ hiring, compared to 30% in the Levant and 29% in North Africa.

Looking at future hiring expectations, seven in 10 working respondents state that they would be hiring in a year’s time. The plans for hiring in a year’s time shows more positive results amongst the GCC countries, with 37% ‘definitely’ hiring after 12 months, compared to 30% in Levant and North Africa.

65% of those who plan to hire in the next 3 months indicate that they would be hiring for up to 10 positions.

Over three-fifths (64%) of working respondents state that their companies have hired new employees within the past 6 months.

The trend continues from past waves with most employers planning to hire people for junior or mid-level executive positions.

Accountants (17%) and Sales Managers (16%) are the top job roles companies will be looking for in the next 3 months.

Graduation/Post Graduation degrees in Business Management is still the most sought after qualification in the MENA. This is followed by degrees in Engineering and Commerce.

Good communication skills in Arabic and English is still the top attribute companies look for in a respondent, followed by ‘being a team player’.

In terms of experience, managerial skills are still the most sought after, followed by experience in sales and marketing, and computer skills.

Overall, two-fifths believe that their country of residence is more attractive as a job market in comparison to other MENA countries.

When compared to the Levant region (16%) and North Africa (19%), significantly more respondents in the GCC (40%) think that their country of residence is a more attractive job market.

Almost half of working respondents rate their own industry as being more attractive as a potential employer in comparison to other industries.

Overall, Banking and Finance still emerges on top in terms of the industry which respondents consider to be attracting/retaining talent in their country of residence[59]

Economic reform[edit]

Following the oil boom of the 1970s, Middle Eastern economies have implemented several reform policies aimed at sustaining economic growth as well as economic participation at the macroeconomic level. While each country follows their own economic agendas, many economies within the Middle East face similar challenges and offer policy reform that tackle issues that affect the region as a whole.

The implementation of these economic reforms has become more urgent in the region as the Middle East faces more danger as oil price volatility continues to threaten the economic stability of major oil exporting countries. These reform policies focus on common concerns in the region and are especially concerned with attracting foreign investments in a global economy that has become highly integrated.[60]

Countries within the Middle East have also begun implementing more policies that promote integration between Middle Eastern countries in order for the region to reach its full economic potential and to sustain the stability of countries that have accomplished higher rates of growth and development.[61]

Background[edit]

The 1970s marks one of most crucial periods in Middle Eastern economic history. Following the OPEC embargo of October 1973, the market price of oil per barrel rose from $3 per barrel to $12 per barrel in reaction to the 5% production cut and reduction of supply by OPEC countries. The OPEC embargo was directed to the United States, in retaliation for their financial aid and support of Israel during the Yom-Kippur War, as well as other countries who also supported Israel, such as the Netherlands, Portugal and South Africa.[62] The embargo was also prompted by the decision of President Richard Nixon to take the United States off the gold standard, hurting oil producing countries who collected revenue in US dollars. While the OPEC embargo exacerbated the deep recession and inflation in the United States, the economies of the Middle East witnessed rapid expansion and growth in GDP as well as an increase in the Middle East's share of global world trade values from 3.6% to 8% in the period between 1972-1979.[63] As well as experiencing economic growth, the Middle East also made improvements in development indicators such as infant mortality, life expectancy and witnessed a decrease in unemployment across most sectors.

Following the oil boom and the OPEC embargo of the 1970s, the Middle East became a heavily integrated region, in terms of economic growth and employment. The increase in the export of oil by the major oil-exporting countries in the Middle East led to a mass influx of foreign workers from other Arab countries (labor exporting countries) as well as Asian countries. Towards the end of the 1980s the growth accumulated during the 1970s began to halt to a stop, as the price of oil began to decrease and the international environment began to become increasingly competitive. As a result, countries such as Morocco, Tunisia and Jordan began to implement types of economic reforms during the mid 1980s. Soon after, most countries within the region had implemented some form of economic stabilisation policy. During the 1990s the GCC countries (Saudi Arabia, United Arab Emirates, Bahrain, Kuwait, Oman and Qatar) were becoming increasingly vulnerable to oil-price volatility, which stunted economic growth, failing to sustain the growth rates achieved in the 1970s and early 1980s.[64]

Common issues addressed in economic reform[edit]

While not entirely similar, economic reform in the Middle East following the late 1990s prioritised the same goals and ideals. Common areas of importance within economic reform in the region were focused on how to sustain growth rather than achieve growth that is fleeting. Over the years, several policies and plans have been implemented and formed, aiming at reducing the constraints on economic growth and looking closely at how to maintain growth and adequately redistribute wealth to the people.

Intersection of political and economic reform[edit]

For many countries and economies within the Middle East, the heavy integration of politics into the economy and vice-versa is a determining factor in the implementation process of both political or economic reforms that are being suggested. Political instability has proved to be a major obstacle to effective economic reform in the region. The instability throughout some parts of the region also deter foreign investment and further economic integration on a global level. Furthermore, political transparency has also proved to be a deterrence to economic development in the region. Since the quality of institutions and governance are important factors in stimulating growth, economic reform in the Middle East may not be complete if political reform is not suggested or implemented simultaneously. The political instability and continuous regional conflict (such as the Palestine-Israel conflict) within the Middle East also prevents the region from achieving its highest potential as it consistently faces numerous humanitarian crises that affect the majority of development indicators such as life expectancy or infant mortality rates.

Integration into the global economy[edit]

Another common issue that the region has addressed in economic and policy reforms is the integration of the Middle East into the global economy. Reports of economic reform in the Middle East in the early 2000s called for massive reforms to improve the Middle East's global financial integration as it stood below most developed regions. Such reports also called for a reform of the trade sector and agreements that had been previously implemented in the region that prevented most trade, besides the export of oil by oil-exporting countries. Noting trade openness as a "a significant contributor to higher productivity are per capita income growth",[65] several countries in the Middle East have accomplished the common goal of trade reform and openness in order to more properly integrate the region within the global economy.

Reforms in new age of the Middle East[edit]

Subsidy Reform[edit]

History of price subsidies in the Middle East[edit]

A common issue within Middle Eastern economies is the use of subsidies, of which energy subsidies account the most for. Price subsidies were first introduced in the Middle East over a thirty-year period from 1940-1970, with the primary goal of price stabilisation. Many of the price subsidies implemented in the Middle East began simply as price stabilisers, however over time these stabilisers mechanisms all transformed into price subsidies. The issue with the use of subsidies in the Middle East was that these subsidies, while meant to be implemented as a "social protection" or welfare tool, in actuality were not targeted enough nor were they cost effective, defeating their primary purpose. A concern about the use of subsidies in the Middle East was that they were not reaching their target audience, people in the economy who needed more government assistance, and rather a large portion of richer citizens within these economies were receiving the benefits that result from the implementation of subsidies. Many economies in the Middle East have embraced the use of subsidies for major sectors because it is one of the only social protection programs that may be put into place in the region. Moreover, the citizens of several Middle Eastern nations had also adapted naturally to the implementation of price subsidies, embracing them as natural rights available to them as citizens, making these subsidies difficult to remove without failure. During the 1990s, the Middle East saw various structural reforms, from privatisation to financial stabilisation, however subsidy reform was still not implemented due to subsidies accounting for a smaller portion of GDP during the period, reducing the pressure on reform.[66]

Pressure for reform[edit]

Following the 1990s, the pressure to implement price subsidy reforms began to build as the prices of oil rose beginning in the 2000s. As the price of oil steadily increased, it became apparent that price subsidies were preventing governing bodies from implementing more needed social programs. This came along with the fact that as the price of oil increased in the global market, as do price subsidies in the local economies, leading to a price increase in subsidised products, such as food.[66] Almost a decade later, price subsidy reform is becoming more tangible as the Middle East goes through a political upheaval which results in the of The pressure for subsidy reform increased following the 2008-2009 world financial crisis, under which the prices of commodities rose, invariably raising the subsidies on these commodities.

Reform[edit]

Beginning in 2010, 6 countries in the Middle East (Islamic Republic of Iran, Republic of Yemen, Jordan, Tunisia, Morocco and Egypt) made significant reforms to their price subsidies system. The Republic of Iran was the first country in the region to do so, and began by implementing major price increases of all fuel products as well as electricity, water and transport. This increase in prices of commodities was offset by the implementation of cash transfers of 445,000 rials per person each month. In terms of non subsidised commodities, the prices of such goods also rose, with increases in price averaging around 30% and peaking at 100%.[66] The cash transfers provided to citizens were found to be excessive and were disproportionately benefiting the richer citizens of the country. Due to the adverse effects of the subsidy reform, some portions of the reform were repealed in March 2012 under the newly amended Targeted Subsidies Reform Act. Another country in the region that implemented subsidy reforms was the Republic of Yemen, which did so with the help of the International Monetary Fund and The World Bank in 2005-2010. During this period, prices periodically increased several times. In 2011 and 2012, increases in the price of gasoline, diesel and kerosene continued, drawing little public attention. However, the decision to remove subsidies all together in 2014, increasing prices by almost 90% for some products, drew public outcry and led to the reverse of some of these reforms within the same year. Different approaches have been taken by these countries, with some being more extreme with the course of change and others who take a more transitionary approach to the reforms. The effectiveness of such reforms is dependent on many different factors that differ on a case-by-case basis, such as the political climate during the time of the reform or whether or not the public receives precautionary warnings and advice in regards to the removal of subsidies from goods and services.

The progress of countries in the Middle East to reduce subsidies is still an ongoing challenge, however it has developed significantly since the beginning of the century and at current the statuses of these reforms can still not be determined as they remain susceptible to changes in regime and political conditions as well as socioeconomic factors.

Economic diversification[edit]

An area in which the Middle East has been increasingly attempting to develop in has been through the diversification of sectors, especially by oil-exporting countries, to decrease the region's dependency on natural resources. The countries of the Gulf Cooperation Council have addressed this issue and have taken a strong stance in the implementation of reforms that will continue to diversify the economy of the region. In order to decrease resource dependency within the Gulf states, reforms and policy proposals for the future have been implemented and follow a plan of economic development and signal the move from natural resources to a more diversified economy that attracts foreign investment and is highly integrated within the global scheme. Examples of such plans to diversify economies include Saudi Arabia's Vision 2030 and the United Arab Emirate's Economic Vision 2030, both of which outline the countries goals to reach the desired level of economic growth and development by the year 2030.

Saudi Arabia Vision 2030[edit]

Saudi Arabia's economic vision for the year 2030 outlines various goals that the Kingdom hopes to achieve in order to be "a pioneering and successful global model of excellence, on all fronts"[67] A goal that is set to be accomplished by the year 2030 is the expansion of SME (small and medium-sized enterprises) to account for 35% of Saudi Arabia's GDP, a 15% increase from the 20% the industry holds in percentage of GDP today. As well as aiming for a SMEs to contribute a larger percentage of GDP, the plan to allocate 20% of funding to SMEs was also outlined in the plan. The plan also makes mention of the continued privatisation of "state-owned assets" which aims to bring in more diverse forms of income for the country.

Abu Dhabi Economic Vision 2030[edit]

Abu Dhabi (capital of the United Arab Emirates) also has similar goals to the Kingdom of Saudi Arabia in terms of the increasingly global and diversified economy the city hopes to achieve by 2030. Abu Dhabi's vision outlines the plan to use the acquired oil wealth of the city as a means to diversify the economy.[68] Focusing on GDP by sector, the Emirate outlines the plan to result in a more diversified economy, emphasising the link between economic diversification and economic sustainability. The Emirate is also concerned in developing the private sector within the city and states that at publication in 2008, that the ratio of small, privately owned businesses to large businesses was on-par with developed, international economy.

Value added tax in the GCC[edit]

As of January 2016, Saudi Arabia and the United Arab Emirates announced the plan to implement value-added tax (VAT) in the GCC as a response to the decrease in oil prices beginning in 2014. VAT is expected to be effective in the GCC as of January 2018, however some countries may implement this tax later into the year.

Implications of VAT[edit]

Though each member of the GCC will establish a separate national implementation of VAT, the implications of VAT on the economy are similar. First, the requirements for businesses operating under VAT appear universal across the region: all businesses that exceed the VAT threshold must register, filing periodic VAT tax returns with tax officials, and record keeping of all business transactions.[69] Furthermore, similar considerations must be taken by businesses and governmental bodies in relation to the implications of implementing VAT. Within financial services, the acknowledgment that VAT may not apply to all financial services (such as services involving Islamic banking or insurance) must be made in order to implement more flexible systems that can manage the implementation of VAT into the already existing financial systems. Considerations of VAT on the oil and gas industry, a pivotal sector within the economies of the GCC, must also be made. The appropriate exceptions and VAT treatments on the existing financial operations regarding the Oil and Gas sector within each economy must be made. Another economic sector that may be adversely affected by the implementation of VAT in the GCC is the retail sector. As VAT is introduced and implemented in the economic market, retailers must be aware of the correct way to classify sales. Lack of caution in classifying retail sales as well as implementing retail loyalty schemes may potentially interfere with VAT, leading to complex situations. 

Economic history[edit]

Around 1800[edit]

Textile production was the most important industry, complemented by food-processing, furniture and specialized industries in some places. Industrial production was mostly concentrated in the cities. With exception of Istanbul, the cities themselves were all situated next to a substantial area of cultivatable land with soil quality. Most industries, with fixed price and guild systems, were not conducive to innovation, even if a certain quality of craftsmanship was preserved. Another important urban function was to organize caravan trade.[70]

Early nineteenth century[edit]

During the early nineteenth century, the situation in the Middle East changed dramatically because of three development paths: mild reforms and problematic openness in the Ottoman imperial core, forced development in Egypt and direct colonization in central Asia and Algeria.[71]

20th century[edit]

After the period of deindustrialization, during the 20th century, political movements in the Middle East not only demanded a political renaissance, but many of its leaders also saw the need for reindustrialization.[72]

See also[edit]

References[edit]

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Further reading[edit]

  • Hakimian, Hassan; Jeffrey Nugent (2004). Trade Policy and Economic Integration in the Middle East and North Africa: Economic Boundaries in Flux. New York: Routledge. 
  • Henry, Clement; Robert Springbord (2001). Globalization and the Politics of Development in the Middle East. Cambridge: Cambridge University Press. ISBN 0-521-62631-5. 
  • Noland, Marcus; Howard Pack (2007). The Arab Economies in a Changing World. Washington, D.C.: Peterson Institute for International Economics. ISBN 978-0-88132-393-1. 
  • Richards, Alan; John Waterbury (2008). A Political Economy of the Middle East. Boulder, Colorado: Westview Press. ISBN 978-0-8133-4348-8. 

External links[edit]