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What our members have to say...
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"The 249 Euro investment in your service has been the most valuable investment so far in the past 4.5 years of German Tobacco. I'm in dialogue with a Swiss/New York financing broker, a U.S.-Merchant Bank and a Canadian service provider for a publicly listed Cash Pool Company to raise funds for German Tobacco. Out of this progress I have attracted an Australian lawyer with a Chinese and Australian investor seeking tobacco investments."
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Thomas Schumann - Chairman of German Tobacco |
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The Middle East needs a new economic model
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The ‘Perfect Storm’ of political instability, rising oil prices and the continuing impact of the financial crisis on the banking sector are creating a growing economic divide between the region’s oil exporters and those that have to import fuel to meet their energy needs.
It is a dividing line created by the location of hydrocarbon deposits but which has been accentuated over the past few months by the political and economic uncertainty caused by the Arab uprisings, and which, if allowed to build unchecked, could see higher oil prices creating more rather than less instability in the region.
It is no coincidence that the economies that have been worst affected by the political protests have been those with insufficient oil - Egypt and Tunisia - or those that have failed to translate oil reserves into improved living standards – Libya and Yemen.
The growing divide is highlighted by the latest economic forecasts from the IMF. With global demand for oil set to remain strong in 2011, the Fund is forecasting a surge in oil prices to an average price of $107 a barrel in 2011, up from $79 a barrel in 2010.
Such a rise will deliver to the region’s oil exporters strong fiscal surpluses and real GDP growth of around 4.9 per cent, with the GCC projected to enjoy growth of 7.8 per cent 2011 as oil supply from the Gulf expands to stabilise disruptions in Libya.
Meanwhile, the energy importers face average growth of about 2.3 per cent, with Tunisia (1.3 per cent) and Egypt (1 per cent) projected to see growth some 2.5 – 4 percentage points lower than in 2010 as a result of the protests.
But it is the ongoing impact of the financial crisis on the regions’ banking sector, rather than the Arab Spring, that will continue to be one of the most significant factors in undermining the economies of the energy importers.
The non-oil economy, and in particular, the private sector, is key to creating new jobs, driving wealth creation, and delivering economic diversification. But to function effectively, the private sector needs to be able to borrow. Banks need to lend.
Until the banking community has confidence that it can manage its exposure to bad investments and debts, and is confident that the global economy is in sustained recovery mode, regional economic growth will be driven by the state spending and policy priorities of the oil-rich states.
For infrastructure-focused companies in the GCC this is good news. For everyone else, it is not.
The oil-importing states are facing increasing fiscal pressure as they seek to manage their debt, while at the same time subsidising fuel and food prices, and providing public services. In these states, government spending will be constrained, affecting state employment, services and infrastructure .
One of the most predictable consequences will be an increase in social tensions, which, without any effective mechanisms for public debate, will further fuel social unrest.
As my colleague Eddie O’Sullivan said in his Last Word blog this week, this will increasingly be met by tough government crackdowns.
In this scenario, it is quite feasible that social tensions will spread across the region, and that frustration at the failure of the Arab Spring to deliver significant improvements in living standards and political reform will once again push the region’s disaffected youth towards extremist groups, setting the region back a generation.
The only way to break out of this negative cycle is to find a new approach. The region requires an third economic model to the current alternatives of strict state control or complete economic liberalisation based on harsh IMF-led structural reforms, which have failed to improve the lives of the majority of people in the region.
As well as removing corruption and the new model should seek to encourage and support entrepreneurship and business risk taking with seed funding and micro finance, combined with intellectual and administrative support.
This will encourage small and medium-sized companies in the region, who can join the huge state-owned companies and big family businesses as engines of regional growth.
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