Hundreds of empty cars sit gathering dust at Dubai International Airport, abandoned by people whose dreams of starting a new life in the sun-soaked emirate have since turned sour. It is January 2009 and most have fled after racking up debts they can ill afford to pay off, a crime that carries a prison sentence in Dubai. Some are guilty of accepting any loan the local banks threw their way; others find themselves suddenly unemployed with no means to settle what they owe.
All have been stung by a devastating global financial crisis that began in late 2008, the likes of which had not been seen since the 1929 Wall Street Crash. No region has been spared from a meltdown led by the collapse of US subprime mortgages and major banks in the West. The Middle East is no exception, with Dubai arguably the biggest loser. Widespread construction and pioneering projects, such as man-made archipelagos shaped like the world and the Palm Deira, remain on hold, while property prices have nosedived since the boom years.
Nevertheless, despite the suffering endured by Dubai in particular, the Middle East has got off rather lightly. "The Middle East has not been so badly hit by the economic downturn in comparison to other regions, as it has limited direct financial exposure," says Dr Samir Pradhan, senior researcher for the GCC Economics and Gulf-Asia Programme at the Gulf Research Centre. He adds that financial services, real estate, construction and tourism have suffered most, albeit not to the same extent as elsewhere.
Dr Samir echoes a sentiment found in an International Monetary Fund report published last October. In it, the IMF said sound government policies had softened the economic impact on the region. Oil importers with small manufacturing bases and limited exposure to banking, structured finance and global capital markets, it noted, were particularly resilient. "Drawing on substantial reserves built up prior to the crisis, governments responded with expansionary fiscal policies and liquidity support to their financial sectors, which has helped contain the impact on the broader economy," the study added.
Stimulus packages have also helped shore up Middle Eastern markets amid chronic economic problems. In March 2009, Kuwait's government announced it would inject 5.2 billion dollars into its economy to spur lending and bolster financial firms, aiming to enable banks to borrow four billion dollars within two years, half of it government-guaranteed. With its stock market in turmoil at the height of the crisis, the Kuwait Economic Society claimed the country was losing nearly 261 million dollars a day in late 2008. Around the same time, one of its biggest finance companies, Global Investment House, appointed HSBC as an adviser to restructure some 3.1 billion dollars of debt.
Other countries have taken similar steps, according to Oliver Cornock, Oxford Business Group's regional director for the GCC. "Measures have been taken by central banks where they have shored up liquidity," he says. "For example, in Qatar, where investments are made through sovereign wealth funds, to Saudi Arabia, where there was a stimulus package going towards huge amounts of infrastructure spend. And in Kuwait, they cut their budget initially but have stimulus packages, which will be a massive boost for that economy."
Of all the GCC countries, Qatar has arguably proved most resilient, with corporate finance specialist QNB Capital recently predicting GDP growth of 14.5 per cent this year and 17 per cent the next. The country's economy owes much to its rich source of natural gas, which has helped maintain its strength in difficult times. Billions of dollars have been spent on gas projects, including the liquefied natural gas plant at Ras Laffan, while talks to increase supplies to India have recently been held.
Saudi Arabia has also held a steady course. None of the kingdom's seven banks reported annual losses for 2009 or asked for government support. The country has taken a few knocks, most notably a drop in the oil price from record highs of 147 dollars in mid-2008 to between 70 and 80 dollars now, and defaults involving the family business empires of the Saad Group and Ahmad Hamad Algosaibi and Brothers, which were revealed in mid-2009 to carry some 20 billion dollars of debt between them. But government spending to stimulate bank lending has seen it through the worst. Expected GDP growth for 2010 is 3.7 per cent, compared with 0.15 per cent last year.
Looking to outstrip both Saudi Arabia and the UAE for growth in 2010 is Bahrain, expected to register a four per cent rise. The country's Economic Development Board says it has experienced real GDP growth of 70 per cent over the past decade, spurred by ongoing investment aimed at increasing diversification. Two years ago the state unveiled Vision 2030, an initiative targeting more private industry development while breaking the kingdom's reliance on hydrocarbons. "The simple fact is Bahrain has diversified far more than other countries," Cornock says. "It realised early on that there was no choice because the oil it had was running out. Bahrain diversified early and didn't put all its eggs in one basket."
If Bahrain is anything to go by, then most economies in the Middle East have maintained a steady course through the economic storm. Some have suffered more than others, such as Dubai, which is still recovering after seeing its construction and property industries battered by the unforgiving conditions. But generally, few could argue that the Middle East has not shown itself to be a resilient force when the going gets tough.
