Oil-exporting nations reap benefits of Arab Spring (page 1 of 2)

After a year which has been dominated by the violence of the Arab Spring, the economies of the six Gulf Cooperation Council (GCC) nations have emerged unbroken, if not unscathed, from 12 months of uncertainty and unrest. By way of response to the protests which have engulfed the Middle East and North Arica, each has committed significant sums to social welfare programmes and economic stimulus packages, and each will make social spending their priority in 2012.

And yet the surge in the oil price as a consequence of the unrest means that if 2011 goes down as a year to forget for the politicians, it might still be one to celebrate for the bank balances of oil-exporting nations.

Social welfare spending soars

A report published in September by Merrill Lynch Bank of America estimated that social welfare spending by the six GCC nations since the unrest began had amounted to almost $150bn.

"The initial response of GCC policymakers [to the Arab revolt] has been to sharply increase current spending to accommodate social pressures and to pledge intra-regional fiscal transfers to less endowed members," wrote Jean-Michel Saliba, Middle East and North Africa economist for Merrill Lynch, and author of the report. "We estimate that these extra GCC spending pledges total $150bn (12.8% of GDP) while 2011 appropriations could reach 4.9% of GDP."

The UAE this month announced public sector pay increases of up to 100%, as well as the creation of a $2.7bn fund to help indebted citizens, and other social spending measures. Earlier in the year it said the capital Abu Dhabi would spend close to $2bn providing housing loans for nationals. Since February and the fall of Hosni Mubarak's regime in Egypt, Saudi Arabia has announced economic stimulus packages amounting to an estimated $130bn. Qatar announced public sector pay increases of between 50 and 120% in September, while Kuwait has handed out $3,500 in cash to each citizen along with free food rations. Oman has enacted a 43% rise in the minimum wage, as well as an increase in unemployment benefits and the promise of an extra 50,000 jobs for locals.

In the Gulf, the tank track-marks of the Arab Spring are perhaps most visible in Bahrain, where at least 35 people have died and multiple human rights abuses are reported to have taken place after more than 1,600 people were detained without charge. A recent report by global risk consultancy Geopolicity estimated that the cost of the Arab Spring to Bahrain's GDP is around $391m, or 2.77% of GDP. The increase in public expenditure amounts to $2bn, while the increase in public revenue amounts to just $1.3bn. Moreover, costs as identified by Geopolicity do not take into account losses to human life, infrastructure damage and business and foreign direct investment losses.

The island state's reputation as a financial hub has suffered significantly as a result of the violence and the subsequent flight of international and regional business from Manama. The Economist Intelligence Unit now estimates that Bahrain's economy will grow just 2.4% in 2011, compared to nearly 4% in 2010. And while oil revenues have remained stable, public expenditure has soared partly due to government cash transfers of around $2,600 to each family, in an effort to compensate the victims of economic decline and head off further unrest.

Both Bahrain and Oman, which saw violent clashes between security forces and protestors earlier in 2011, will be the beneficiaries of investment totalling around $20bn from Saudi Arabia, the region's largest economy and that which supplied armoured personnel carriers and thousands of troops to help suppress protests in its Gulf neighbours.