Effects of 2008 Global Crisis on Gulf Region - Research Paper Example

Effects of 2008 Global Crisis on Gulf Region al Affiliation Effects of 2008 Global Crisis on Gulf Region Introduction The current economic and financial crisis, whilst having a global impact is clearly affecting certain regions more harshly than others are. Arabian region may be one of those areas worst affected. This might be surprising for some, given the wrong perception that the area is extremely wealthy due to its vast foreign exchange reserves and the oil riches in these countries to tide them over or that their banking sectors are not exposed to severe global financial system changes. This paper will look at the effects of the 2008 economic crisis on the gulf region, while specially focusing on Qatar. The Gulf/Arabian region is a diverse area that contains both very poor and rich countries, with a very high dependency on global markets. The area is also significantly experiencing demographic pressure and does not have a well-functioning social safety net and regional integration. In this understanding, the initial effects of the financial crisis, thus considerably differed amongst these Arab countries. Considering the major loss of overseas investments, the most adversely affected by this crisis were the Gulf States especially in Europe and United State; the United States for instance had about 55 percent of the Gulf Investments (Ellaboudy, 2010). This chiefly portrays itself as a sharp decrease in the area’s stock markets, roughly between 20 and 60 percent, and some major projects facing cancelation. From the beginning of the crisis in these countries, the effects are evident with close ties to financial markets, in areas like the United Arab Emirates. A drop of 30-60 percent drop has been recorded in the stock market indices in the last quarter of 2008 and in direct market stock declines the Arab investors lost an estimated 600 billion US dollars (Senbet & Gande, 2009). In the regional banking sector, a devastating shortage of capital has been induced by the crisis. For example, in 2008 the Gulf bank of Kuwait lost 1.54 billion US dollars. This has forced the governments in the Gulf to pump funds to the banks in order to save them. Direct financing in the region has also been affected by the crisis, irrespective of whether it is by foreign banks with limited credit lines or local banks that has become more adamant towards lending. The effects even extend to the real estate markets, which has resulted to a lack of slowdown and liquidity in real estate development in places like Dubai and Abu Dhabi consecutively. A real decline in the demand for bank credit contraction and goods was also triggered by the financial crisis. The prices for raw materials have drastically fell, especially oil prices that within a few months had lost more than two-thirds of their initial value. As an aftermath to the oil prices speculation, in the last three months of the year 2008, the rates decreased to less than 40 dollars a barrel, after having risen at the beginning of the year from 90 dollars to 148 dollars a barrel (Claessens, Kose, Laeven & Valencia, 2013). The Golf real estate market has heavily been impacted by the global economic crisis causing considerable decline in real estate rents and capital value. The price of average residential sales, in Dubai fell by 42 percent since the last quarter of 2008, while rental residential rates dropped on an average of 20-40 percent. The impact of the crisis in Abu Dhabi was less acute as the decline in residential real estate value was estimated to be around 20 percent. Rentals for new constructed office space in Qatar decreased by 10-15 percent during the 2008 first quarter. Due to the greater uncertainty over the future and lack of funding residential real estate, sales have collapsed (Hvidt, 2013). It will therefore be hard for many countries in the area to continue with their initial planned or initiated ambitious development programs that were planned in the last five years of prosperity. In order to avoid current account deficits or budget deficits, most governments in the region will be reluctant to expand projects resulting in economic activity contraction. In contrast to these negative economic impacts, countries like Qatar have passed the financial crisis unaffected. The stability and strength of Qatar economy vividly appeared on the local companies in all the sectors including the Al-Akharya, a real estate company. Contrary to the Al-Akharya companies in other regional states, the real estate companies are still going on achieving their projects. Many of them were obliged to postpone or call off some of the projects indefinitely (Hossain & Hammami, 2009). For Qatar the most important factor that supported it to face and resist the financial crisis, is energy sector, which is considered the Qatar economy main tributary. It includes associated industries such as gas and oil. Regardless of the low oil prices, gas subsidizes to cover a large part of the decline and to let the continuation of the development projects. Qatar’s prudent policy could achieve special major economic achievements by the stimulated laws and rules support, which encourage investment and establishing an infrastructure that is solid and able to grasp and understand goals and ambitions. This is inclusive to the official’s success to diversify the income resources next to the private sector and the increase of activities in real estate, trade, tourism, industry and other fields. Thus, the Qatar process of development is a sustainable process, which does not stop facing global or other crisis. In the coming years it will continue as an investment highlighting the vibrant and positive national economy on a solid foundation which passes it to play an important role in the area, able to pass the recent global financial crisis (Imed, 2009). Conclusion The Arab region especially the countries that do not export oil will clearly be negatively impacted by the global economic crisis. The impact on unemployment, during the biennium 2009-2010 periods is a substantial area of concern. Facilitating the recovery and mitigating the impact in the Arab region would require at a minimum; recognition of these differential impacts across the many Gulf countries, and sorting out the areas lack of well-functioning social safety nets, effective regional integration, and excessive dependence on external demand. References Claessens, S., Kose, M. A., Laeven, L., & Valencia, F. (2013). Financial Crises: Causes, Consequences, and Policy Responses. International Monetary Fund. Ellaboudy, S. (2010). The global financial crisis: economic impact on GCC countries and policy implications. International Research Journal of Finance and Economics, 41, 180-193. Hossain, M., & Hammami, H. (2009). Voluntary disclosure in the annual reports of an emerging country: The case of Qatar. Advances in Accounting, 25(2), 255-265. Hvidt, M. (2013). Economic diversification in GCC countries: Past record and future trends. Imed Drine(2009). Impact of the Global Economic Crisis on the Arab Region. UNU-WIDER, newsletter. Retrieved from; http://www.wider.unu.edu/publications/ Senbet, L. W., & Gande, A. (2009). Financial Crisis and Stock Markets: Issues, Impact, and Policies. Dubai Economic Council “Financial Crisis, Its Causes, Implications, and Policy Responses. Read More