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Road to Recovery, Part II
Come on – it wasn’t all bad. The crash of 2009 put the Gulf economies on a more solid footing, reports Trends magazine. Part II.
November 23, 2009 12:15 by Scott MacMillan
Maybe it’s difficult to blame them, given that during the years 2002 to 2006, oil brought the six states of the GCC an estimated $327 billion on average per year, more than double the average for the previous five years, and that’s not even taking into account the peak prices that came in 2007 and 2008. But Saif says this money was not put to good use.
Saif argues that the boom allowed the Gulf states to put off needed reforms that had been acknowledged as a priority by policymakers during the 1990s and early 2000s, including the development of the private sector, improving corporate governance and business and regulatory environments, and creating more non-state employment opportunities for GCC citizens. Put simply, when the money started pouring in, those ideas suddenly didn’t seem as important.
“For better or for worse, the 2002 spike in oil prices allowed GCC countries to avoid going into a domestically challenging area of restructuring,” Saif writes. “Governments resorted to simply increasing domestic spending on current and capital expenditures by allocating more resources to health, education, and wages for nationals. Hence, the oil boom delayed some of the economic reform measures that the GCC countries had contemplated prior to
2002: Increasing the level of domestic taxation, opening up some sectors, and implementing policies aimed at increasing nationals’ employment in the private sector.”
In the case of Dubai, rather than diversifying properly, policymakers put too many eggs in the real estate basket, relying on property sales much the way other governments rely on hydrocarbon revenue. The strategy backfired during last year’s liquidity crisis, when financing for home purchases and new developments unexpectedly dried up, sparking a wave of distress sales.