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Gulf Arab governments tackle higher food prices
Food price rises are less risky in the oil wealthy Gulf, but Saudi Arabia may see some public anger.
February 3, 2011 11:34 by Reuters
At last week’s World Economic Forum in Davos, world leaders warned that soaring food prices could trigger more unrest and even war.
“Imagine the pressure on food, energy, water and resources,” Indonesian President Susilo Bambang Yudhoyono said in a speech at Davos. “The next economic war or conflict can be over the race for scarce resources, if we don’t manage it together.”
A fast-rising young population and rising unemployment may raise social pressures in Saudi Arabia as the world’s top oil exporter has more trouble distributing its oil wealth among 18.5 million locals unlike other Gulf governments, though street protests are unlikely.
To provide work and diversify its economy from oil, Saudi Arabia is in the third year of a $400 billion five-year programme, but spending has to be managed carefully to avoid adding to inflation.
“In 2011, we expect in average (global) food and beverage prices to go up substantially by almost 20 percent,” Ayesha Sabavala, economist at the Economist Intelligence Unit, said.
“I see some risk of this food price inflation in terms of some anger against the government in Bahrain and Saudi Arabia. But nothing to the extent of Tunisia,” she said.
Inflation has been on the rise across the Gulf in the past year, hitting multi-month highs, but consumer price growth remains far below record highs above 10 percent seen in most Gulf nations in 2008, during the peak of the construction and investment boom.
Gulf inflation is projected to be between 2.8 and 5.0 percent this year.
Saudi Arabia’s central bank governor has already expressed concern over inflation in the desert kingdom, which much like its neighbours imports around 70 percent of its food needs.
Growing oil receipts allow rulers of oil-exporting countries to pay hundreds millions of dollars in subsidies from fuel to housing for the local population, although some such as the United Arab Emirates have started to cut back.
“They are too flabby to go to the streets. There are no shortages of food, there is abundance of food, it is abundance of almost everything else,” said Sami al-Faraj, head of the Kuwait Center for Strategic Studies.
“A citizen in Gulf states is not just given a fantastic welfare state system but somehow he is or she is pampered to not know limitations,” he said.
In Kuwait, which saw the steepest annual food price rise in the Gulf last year at 8.5 percent, its emir ordered the distribution of $4 billion in cash and free essential food.
Morocco’s government, which heavily subsidises food and gas, has vowed to keep food prices at affordable levels “at any price” for its population of 32 million.