Effects of the 2008 Financial Crisis on the Investment in the Gulf Area - Research Paper Example

Effects of the 2008 financial crisis on the investment in the Gulf area especially in Qatar The global financial crisis affected the whole world though the impact has been severe in the Arab Countries. This comes as a surprise to many, considering that the Arab countries are rich in oil reserves. The general perception is that these oil reserves cushion the Arab countries during the global crisis. These perceptions are obscure since the Gulf region has extremely rich and extremely poor countries. Different countries in the Gulf region have different economic, demographic, and political features. The initial impact of the financial crisis was felt partly in some Arab states depending on their participation in the international markets (Qatar 6). Impact on Finance and Economy The 2008 global economic crisis affected the financial markets of countries in the Gulf region. In many states, the stock exchange index declined by nearly 62% in 2008. By 2009, the projected GDP growth rates had fallen from 3.5% to 0.5% (Rocha & Subika 71). In addition, the economic growth decreased by more than 3% in the same year. With the exception of Qatar and Yemen, most states in the gulf area have projected lower GDP growth rates. The cornerstone of Qatar’s’ economy is petroleum. Most of the government revenue, export earnings, and GDP are derived from oil reserves and gas exports. Qatar is the third producer and exporter of oil in the world making it the richest country in the world (Rocha & Subika 71). Effects on banking The banking sector in Qatar escaped the impact of the financial crisis. Most banks all over the world lost their role as creditors and financiers because of the crisis. Banks in Qatar posted big profits in the Gulf Cooperation Council markets in 2009 despite the financial crisis (Sheng 45). Unlike other banks and financial institutions in Europe and the rest of the world, whose banking sectors are experiencing insolvency and bankruptcy, Qatari-banking sector is performing well considering the outcome of the economic strife in other countries. They are experiencing financial stability and solvency. It is worth noting that the real GDP growth rate in Qatar increased by 4% in 2008. However, it declined in 2011. According to Basel standards, Qatari banks have some of the highest overall capital adequacy ratio in the world (Sheng 45). Qatar’s Central Bank has taken measures particularly in the real estate sector. Qatari Central Bank issues instructions on buying of shares and financing of real estate projects. Decisions of lowering interest rates, enhancing the compulsory reserve ratios and other key issues in management of banks have been properly addressed in accordance with market mechanism. Qatar’s monetary policy is risk free due to the sound policies implemented to attract foreign markets (Rocha & Subika 65). Economic growth and Employment Before the financial crisis, the gulf region had numerous job opportunities in the world. The financial crisis led to a decline in job opportunities in the gulf area. Total employment decreased greatly. Research shows that the percentage of women seeking employment also increased in the region due to the effects of the financial crisis that caused slow economic growth, inflation, and economic meltdown. Agriculture and manufacturing that were once the main sources of employment are now less competitive because of the export of goods to the global markets. It is difficult for women and girls to find jobs that are considered gender appropriate (Sheng 34). The financial crisis led to a decline in labour productivity in the non-oil sectors in the Gulf region and especially in Qatar. An expectation of future pick up in labour has led to hoarding resulting and reduced productivity of labor. Recent conducted analysis shows that the working age and gender have a great impact on the labour force. The global crisis has led to a reduction in migrant remittances. Migrants are important because they contribute to the labor force in the destination countries. Many countries rely on their services (World Bank 33). Effect on industries and Pricing The Gulf States are the least affected countries by the crisis. Qatar’s economy has been resilient in the face of the financial crisis. Despite the financial meltdown, the country enjoys steady business. Survey indices indicate that the construction and real estate sectors in Qatar remain unaffected. This is because of the policies set by Qatar as a country and the global market prices that has seen an increase in prices in real estate. Other sectors that are resilient in the face of this crisis are the hotel, transport, and trade industries. Qatar remains optimistic about their Agriculture and manufacturing sectors too citing that these industries have remained unaffected in the midst of the meltdown. It is important for investors to consider that most business prices in Qatar have remained flat and an increase in prices has been elusive. It has been noted that most firms in Qatar base their business plans on realistic expectations and assumptions. The attitude reflects Qatar’s ability to persevere during these hard economic times. Generally, the overall performance of non-gas and oil industries is strongest. It is important to note that although there have been major expansions and investments in the oil economy; it is the other industries that generate the highest GDP (Fasano 21). Finally, the global meltdown has slowed down economic growth in the Arab countries. The region has witnessed a decline in unemployment levels and projections show that the number is likely to increase within the years. The inflation rate is also high though considered acceptable in comparison to other nations in the world. The future of Qatar is bright amid the financial crisis. However, research shows that over time, the production of oil is likely to reduce because its main offshore fields Al-Rayyan and Idd El Shargi are almost depleted. As a result, investments that enhance oil recovery are given priority. This means that the oil economy is maintained because of its’ the competitiveness in productivity (Haddad & Ben 43). Countries in the world should realize that supporting their banks and other financial institutions is vital during the crisis. This is achievable by revising policies and balancing their desires towards economic growth and development. The ongoing economic crisis provides an opportunity for countries to prove their economic strength by emerging stronger than before. Works Cited Haddad, Mona. & Ben, Shepherd. Managing Openness: Trade and Outward-Oriented Growth After the Crisis. Washington, D.C: World Bank, 2011. Print. Fasano, Ugo. Monetary Union Among Member Countries of the Gulf Cooperation Council. Washington, DC: International Monetary Fund, 2003. Print. Qatar .Qatar, 2009. London: Oxford Business Group, 2009. Print. Rocha, Roberto R, Zso?fia A?rvai, and Subika Farazi. Financial Access and Stability: A Road Map for the Middle East and North Africa. Washington, D.C: World Bank, 2011. Print. Sheng, Andrew. From Asian to Global Financial Crisis: An Asian Regulator's View of Unfettered Finance in the 1990s and 2000s. Cambridge: Cambridge University Press, 2009. Print. World Bank. Global Economic Prospects and the Developing Countries: 1998/99, Beyond Financial Crisis. Washington, D.C: World Bank, 1998. Print. 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