GCC oil income up USD246m a day on the year

Brad Bourland, Chief Economist at Riyadh's Saudi American Bank (Samba), said higher oil prices, currently US $ 36.61 compared to US $20.24 a year ago, are driving strong liquidity growth in GCC states for the second year running.

Forecasts produced by the bank show that GCC states' GDPs will grow by an average of 3.6% in 2003, compared with 2.2% in 2002. The UAE and Bahrain will lead the way with GDP growth of 4.5%, followed by Qatar, 4%, Saudi Arabia, 3.9%, Oman 3% and Kuwait 2%.

Bourland, who spent 18 years as a diplomat, economist and manager with the US State Department, including three years as First Secretary at the US Embassy in Riyadh before joining Samba, warned, however, that key vulnerabilities persist in GCC economies hindering fiscal development.

"Liquidity growth and low interest rates mask the structural weaknesses that are chronic in Arab world economies, which are still growing slower than their populations and labour forces. In addition governments rarely exercise strong fiscal discipline, resulting in worsening government finances," Bourland said.

According to figures collated by Samba, only Bahrain's GDP grew faster than the size of its workforce in 2002. In Kuwait and Oman workforce growth exceeded GDP by 0.4%; in the UAE by 1.5%; in Saudi Arabia by 4.2% and Qatar by 5.1%.

In addition, Bourland said, five of the six GCC governments ran a fiscal deficit, as a percentage of GDP in 2002. Only Qatar recorded a surplus of 1.2%, according to Samba's figures. Elsewhere Kuwait's deficit was -8.8%; Saudi Arabia's -3%; UAE's -1.5%; Oman's -0.7% and Bahrain's -0.5%.

"Because GCC economies are not performing to their full potential, the result is high and rising unemployment rates," Bourland said.

Samba figures show that the UAE has the lowest unemployment rate in the GCC, at 2.6% of working-age population. Elsewhere in the region the jobless percentage is: Oman, 17.2%; Saudi Arabia, 13%; Kuwait, 7.1%; Qatar 5.1% and Bahrain, 3.1%.

"The prime concern is of a potential employment crisis in the years ahead because the oil boom, starting in 1973, has created a baby boom, at a time when death rates in the region have fallen substantially," said Bourland.

"In Saudi Arabia, although there is almost full employment in the 30 years plus age group, the challenge is coming down the road because the economy is not creating enough jobs, for the millions of males aged 0-19 years," said Bourland.

"This kind of youth bulge profile is common throughout the Arab world and is very worrisome, given that Arab economies are not growing fast enough to accommodate current new entrants to the labour market."

Bourland said that although the replacement of expatriate workers by nationals provides some relief it is not a cure for growing unemployment.

"If you replace an expatriate with a national you are simply swapping one worker for another. You are not creating new jobs. In addition, many low wage, unskilled jobs are not attractive to nationals. There is a danger that a well intentioned policy, if not properly structured, could destroy more jobs than it creates, by introducing rigidity into the labour market," said Bourland.

Organised by IIR, the International Islamic Finance Forum, that concludes at the Crowne Plaza hotel tonight (February 25), is being attended by over 300 delegates from 25 countries, spanning North America, Europe and the Middle and Far East.

It is addressing key challenges faced by the Islamic finance sector, worth US $230 billion and predicted to maintain double digit growth for the next 15-20 years. These include the international regulatory environment and how it affects Islamic finance; Muslim country stock exchanges and Islamic financial centres; the pros and cons of Islamic hedge fund plans; wealth management post 9/11; new Islamic indexes, funds and sukuk market and international moves in the Islamic mortgage market.

The forum and its associated exhibition is being held under the patronage of His Highness General Sheikh Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and UAE Defence Minister. It has been organised in association with Dow Jones Indexes, the Saudi Economic and Development Company (SEDCO) and ihilal Services.