Three reasons to be cheerful about 2002

As the year draws to a close it is traditional to consider the future year ahead. And reading the newspaper headlines anyone could be forgiven for being gloomy about prospects for 2002 in the Middle East.

But there are three main reasons to believe that 2002 may not prove to be quite so bad for the region, at least in the Oil States whose economies power all the others.

First, the Afghan War is all over bar the shouting. This week the Western media began to pack up and go home. That means all the damaging images of the 'war against terror' will soon be history, and that the global perception of the Middle East as a war zone will gradually diminish.

Second, this means that orders delayed since September 11 will be placed, and those postponed business trips will be made. These factors will revive certain sectors of the economy such as air travel and hospitality, and enhance business confidence.

And thirdly, interest rates of 1.75 per cent are at a 40-year low. This dramatically lowers the ongoing cost of funding businesses and makes new investment more attractive. It should also fuel regional stock markets and real estate, and thus enhance the wealth effect.

Throw a better than expected deal on oil output by Opec and non-Opec countries into the pot, and the business outlook for 2002 suddenly looks much brighter. Besides, all the Oil States are currently committed to major investment projects that they will not abandon, even if they have to run up a deficit.

Then there is economic reform and foreign direct investment. Expect to hear more about both in 2002. Whether it is Bahrain's break-up of its telecoms monopoly or the start of the $20 billion Saudi Gas Initiative or Syria's first private bank, these are all indicators that the Middle East has broken decisively with its state-run past.

The full implications of the Afghan War for the region's future are also not yet clear. If this catastrophic defeat for Islamic fundamentalists results in an acceleration of the Middle East's integration into the world economy, this will also benefit economic growth. And an earlier than planned creation of a common GCC tariff is perhaps a sign that this is the way events are moving.

So actually there are probably more than three reasons to be cheerful about the business outlook in 2002, and after a worrying autumn things could be looking a lot worse.