Tag: United Arab Emirates

To Stave Off Arab Spring Revolts, Saudi Arabia and Fellow Gulf Countries Spend $150 Billion

Posted on September 21, 2011

Possessing 20% of the world’s proven petroleum reserves, Saudi Arabia has long played the expected role of benefactor among its fellow Arab and Muslim countries. With a total aid budget of $3.1 billion in 2009, Saudi Arabia keeps one of the largest humanitarian aid funds in the world.

Much of that aid went to hardship-struck Muslim nations, including Pakistan, Somalia and the Palestinians. But since the Arab Spring took root this year, Saudi Arabia has spread its largesse among its own citizens and Gulf Cooperation Council (GCC) neighbors — a large part of $150 billion worth of social welfare spending in the region since the unrest began, according to a new report by Merrill Lynch Bank of America.

Only days following the collapse of former Egyptian president Hosni Mubarak’s regime in February, for instance, Saudi Arabia announced a social welfare package for its citizens worth $10.7 billion, featuring pay raises for government employees, new jobs and loan forgiveness schemes. By the end of the month, the handouts totaled $37 billion. In March, the trend continued, as Saudi Arabia’s King Abdullah heralded an additional $93 billion in social spending.

Such generosity was no coincidence, noted the Merrill Lynch Bank of America report’s authors. “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 the firm.

In addition to Saudi Arabia, the United Arab Emirates (UAE) capital of Abu Dhabi put forward plans to spend nearly $2 billion to provide housing loans to Emiratis, while Qatar announced this month an $8 billion payout in wage, salary and benefits increases for all state and military personnel. Oman and Bahrain have also indicated they would increase social spending by the billions this year.

Aside from raises for state employees, the spending in these Gulf states will go toward infrastructure and social amenities, such as roads, schools and hospitals, and further subsidies on food, water and power consumption for citizens.

Saliba and his colleagues cautioned that the outsized spending did not address the long-term nature of the problems presented by the Arab Spring, such as high unemployment. “This [social spending] has averted potential disquiet over governance in most countries, though, over a longer-term horizon, economic reforms will be needed to buoy private sector growth and job creation.”

Saudi Arabia’s generosity has been criticized as a means for the Arab world’s most populous country to make political gains and spread influence. The Merrill Lynch report also does not take into account the cost incurred by Saudi Arabia to send its troops into neighboring Bahrain to help quell a Shiite uprising there — another action to prevent revolt from reaching its own borders.

But in a recent analysis of the Arab Spring for Arabic Knowledge@Wharton, Wharton legal studies and business ethics professor Stuart Diamond said the spending by the Saudis demonstrated their understanding of negotiation. “They understood that for many people, it was about Maslow’s [hierarchy of] needs triangle: that is, basic life necessities such as food, shelter and health mattered most. So the stipends that the Saudi government gave helped to quell disturbances,” he noted.

Diamond added that Saudi spending bought not only continued loyalty from its citizens. “What they have mostly bought was time. For now, the populace will be satisfied with their recent bonuses. But that does not amount to structural and sustainable change, the kind that would significantly improve everyone’s quality of life on a continuing basis. The Saudi government should take this opportunity to include more people in decision-making and develop new industries that give more people a chance at a better life over the long term.”

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For Expatriates in the Gulf, Ignoring Ramadan Customs Could Spell Trouble

Posted on August 1, 2011

As Muslims around the world begin observing the month of Ramadan, non-Muslim visitors and expatriates in Gulf countries are being asked to take heed of Islamic customs to avoid problems with local authorities.

Although abstinence from food, drink, smoking and intimate relations during the day are required of observant Muslims during Ramadan, non-Muslims are also expected to follow the same rules while in public in Gulf countries.

In Dubai, the glitzy sheikhdom of the United Arab Emirates (UAE), one language school is offering a free “Ramadan etiquette” course to non-Muslim expatriates, while a number of local newspapers have published etiquette guides, and do’s and don’ts lists. Some Western embassies have also released advisories on proper public behavior.

Though offered in the vein of broadening cultural understanding, these advisories also serve as guidelines for self-preservation. Breaking these rules in some Muslim countries, notes an advisory on Ramadan from the British Foreign Office, could result in arrest. Just this past month, a British expatriate was fined $US800 by the Dubai Court of Misdemeanors for insulting Ramadan on her Facebook page.

Even Dubai, considered the most Westernized city in the Arab world, said it would police the behavior of non-Muslims living there. For a first infraction, an expatriate would receive a warning if caught by police. Subsequent infractions, according to Dubai police, could result in arrest and a fine of up to US$550.

Dubai’s chief of police, Lieutenant General Dahi Khalfan Tamim, told Arabian Business, “We train our officers how to deal with different nationalities and to respect non-Muslims who may inadvertently offend Muslims during Ramadan by eating, drinking or smoking in public places during the day…. They are to deal with it in a courteous way so that [non-Muslims] would refrain from doing it again.”

International companies have learned it is good business to adhere to Ramadan. A number of brands offer Islamic-themed advertisements and Ramadan messages to customers throughout the Gulf. In addition, it is now common practice for companies to hold corporate “iftaars” (the meal Muslims take at sunset to break their fasts) as a means of socializing and deal-making.

Doing business globally often requires companies to conform to different cultural and governmental systems, but many of those challenges are ultimately outweighed by the benefits of operating within those nations, Wharton management professor Michael Useem told Arabic Knowledge@Wharton for a 2010 story about clashes between BlackBerry maker Research in Motion and governments in the Middle East over demands to monitor the company’s e-mail service. “It’s a little bit like operating in cities like Bangalore, where the power goes [out] for three hours a day,” Useem noted. “It’s a royal pain in the backside, but you still create your operation there. It’s one more challenge there of doing business.”

For long-time expatriates in the Gulf, the strict rules related to Ramadan come as little surprise. Though the oil-rich Gulf countries, with the exception of Saudi Arabia, tend to be the most hospitable to Western expatriates in the region, there has been an increased demand in recent years from the native Arab populace to protect cultural norms.

Partly fueled by locals feeling inundated by expatriates — foreigners make up nearly 90% of Dubai’s population, for instance — there have been a number of recent cases where Western expatriates have run afoul of local customs and laws, and have been jailed and deported.

In 2008, two British expatriates became infamous for being caught having drunken sex on the beach in Dubai, and were jailed and deported. Another Briton was jailed in Dubai for two months last November, and then deported, for giving the finger to an airport worker. And in 2007, a famous British DJ was sentenced to four years in prison after he was found to have 2.16 grams of cannabis in his possession. Due to these and other high-profile cases, the British Embassy said in 2009 that Britons were more likely to be arrested in the UAE than anywhere else in the world.

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Post-Arab Spring, Confidence in Middle East Business Climate Remains Steady

Posted on July 13, 2011

Despite the tumult witnessed across the Middle East and North Africa in the wake of the Arab Spring, senior executives in the Gulf’s leading economies remain confident in the region’s business climate, according to a new survey conducted by management consultants Oliver Wyman and polling firm Zogby International.

A survey of more than 160 senior executives in the United Arab Emirates (UAE), Saudi Arabia and Qatar found that opinions were mixed about the Arab Spring’s short-term and long-term impact on economic development. Just 35% of respondents took a negative view, and most were expatriate Arabs in the Gulf.

“People still are focused on macroeconomic shocks rather than regional issues,” says John Turner, who leads Oliver Wyman’s public sector consulting practice in the region. “The Gulf, particularly the UAE, was harshly impacted by the global financial crisis, and that is still lingering.”

But Turner notes the research reflects “a sizable increase,” in concerns about regional, ethnic and religious tensions. This is the fourth survey of regional executives conducted by the firms, and compared to the last poll in December, there was a 19% rise of tension concerns in Saudi Arabia, which has taken a leadership role to forcefully contain any unrest in the region, and a 7% increase in the UAE, despite the absence of social or economic disruption associated with the Arab Spring there.

Also, the widely mentioned contributing factors to the Arab Spring — the need for education and labor reform to address the region’s youth unemployment — were considered the biggest threats to the region’s long-term competitiveness, and deemed the highest priorities for quick action, according to the survey. “Human capital is at the top of the list for executives in the region,” Turner says.

He adds that the challenge of youth unemployment shifts by scale across the region — Egypt has a population of over 83 million, while the UAE has a population of only 5 million. But the traditional regional solution of providing government jobs to young Arabs has reached a limit, he says. Regional governments in recent weeks have taken more aggressive approaches to ensure spots for their nationals; in Abu Dhabi, several state-linked bodies have purged expatriates to make positions for Emiratis.

The solution lies with private industry, but that has been difficult to achieve, Turner notes. The survey highlights a key factor in this issue: expatriate executives in the Gulf prefer to hire other expatriates, rather than local Arab graduates. “They are more difficult to hire, and costly to train,” Turner says. “Also, most of these expatriate executives have a three- to five-year horizon. There is a mismatch of incentives.”

The survey also took note of the infrastructure spending spurred by the Arab Spring in oil-rich Gulf states — Saudi Arabia, for instance, announced US$130 billion of additional public spending in recent months.

“All those things, businesses like to see, so confidence rises,” Turner notes. But these measures largely aren’t geared to solving underlying issues, he adds. “In the short term, it boosts businesses and appeases discontent. But in the longer term, does it get rid of the fundamental problems, such as youth unemployment?”

Earlier:

Oliver Wyman CEO John Drzik: The Middle East Needs a Comprehensive Risk Management Strategy

Facebook’s Growth in the Arab World Is Surging with Demands for Political Change

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Food Security Concerns Lurking Amid Arab Region’s Unrest

Posted on July 6, 2011

Before the tumult of the Arab Spring, one of the biggest challenges to the rule of then-Egyptian president Hosni Mubarak was a lack of bread. In the summer of 2008, long queues and short tempers over bread shortages were enough that the army was called in to bake and distribute loaves to Egypt’s poorest.

Egypt’s bread protests were soon forgotten. But there now is a growing consensus among analysts and policymakers that rising food costs and food shortages are contributing to the region’s unrest. In a new briefing by the International Food Policy Research Institute (IFPRI), a Washington, D.C.-based think tank, researchers detail some aspects of the Middle East’s food security concerns, and how they relate to the ongoing turmoil.

“People’s satisfaction with their standard of living has deteriorated in most Arab countries in recent years, especially in Egypt, Libya, Bahrain and other countries with civil disobedience,” noted the authors of the brief, “Economics of the Arab Awakening: From Revolution to Transformation and Food Security“, which included all of the Arab countries in the Middle East and Africa.

Food security has worsened in most Arab countries, the authors wrote, due to high food-price inflation. For instance, in Egypt, according to the World Bank, year-on-year food inflation in February was at 19%. “The proportion of people without enough money to buy food increased or remained unchanged in all but one of 12 countries examined,” the IFPRI brief stated. “Egypt and Sudan saw particularly large increases.”

Even in oil-rich Gulf countries, concerns over food price inflation have resulted in various government actions, including planning food reserves and forcing retailers to heavily discount certain basic foodstuffs. In the United Arab Emirates (UAE), the federal government has gone further, asking food retailers to agree to a six-month price freeze on certain items, while conducting store inspections to ensure prices do not increase in the month of Ramadan, when Muslim shoppers tend to buy more groceries. Prices for edible oil, sugars and rices last year in the UAE rose by 50%, according to local media reports.

These food security concerns have also led some Gulf countries to purchase farmlands in other countries for their own food production needs. The UAE has become one of the top purchasers of global farmland, according to IFPRI, while Saudi Arabia has made a number of farmland purchases in Africa. Government officials say that with direct access to food crops, they can save on import spending.

In an Arabic Knowledge@Wharton story about Middle Eastern countries investing in farmlands in Africa, Wharton management professor Stephen J. Kobrin said such land purchases risk reviving a colonial system in which large tracts are controlled by overseas interests that hire many of their own people, reducing the economic benefits to the host country. “The big question is, are you developing local skills or just creating an outpost of the investor country?” Kobrin noted.

And more immediate, easier solutions for Arab countries to reduce import spending costs are available, according to an analysis by the World Bank, including improving logistics efficiency, and using risk-management tools to reduce exposure to price volatility and shocks.

The IFPRI brief also questions some of the measures Arab countries have taken in the wake of the unrest, such as raising civil employee salaries and lowering import tariffs. “Most, if not all, of these ‘firefighting’ measures were used by Arab governments before,” the brief states. “These popular but costly responses have been inefficient in stimu­lating sustainable growth and poverty reduc­tion. “

The authors recommend that Arab governments facing food security issues should seek to improve their “trade agreements, logistics and infrastructure, as well as support for the agriculture sector in countries with agri­cultural potential.”

While the authors acknowledge that it is beyond the report’s scope to determine how large a role living standards and food security played in triggering the revolutions, “results clearly show that in most Arab countries, both indicators have worsened.”

Read the report here:  http://knlg.net/pzgcK1

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Will Expansion Equal Success for Growing Gulf Airlines?

Posted on June 28, 2011

Intent on cementing itself as an international flight hub, Dubai continues to invest in its airline infrastructure and brand new airplanes. The sheikhdom will invest US$5.98 billion to expand Dubai and the new Al Maktoum international airports by 2020, officials say. Meanwhile, the Dubai government-owned Emirates airline plans to spend roughly US$10 billion a year to expand its fleet over three years, including 18 cargo planes.

Demonstrating the increasing clout of Gulf airlines in the aviation industry, Airbus has agreed to redesign its A350-1000 jet, after its Arab customers asked for changes that would allow the plane to fly further and carry more.

The government entity, Dubai Airports, recently forecast that international passenger traffic to Dubai would grow an average of 7.2% percent over the next decade, with passenger traffic reaching almost 100 million by 2020, and cargo volumes above 4 million tons.

Paul Griffiths, Dubai Airports CEO, told an audience in Bangkok recently that in less than a decade, aviation would account for 32% of the sheikhdom’s GDP — roughly US$45.4 billion. But in the same speech, Griffiths acknowledged that Dubai’s current airspace “is not currently configured to support this growth.”

Regional competitors will pose another threat to Dubai’s plans for aviation domination. Doha-based Qatar Airways is expecting to receive 200 jets worth US$35 billion, and is making a play for regional cargo business, converting 15 passenger jets to freighters and taking 33% ownership of Europe’s biggest freight carrier, Cargolux Airlines International SA. There is even competition from within the United Arab Emirates, as Dubai’s buttoned-down neighbor, Abu Dhabi, is undertaking major expansion plans for its international airport, and promoting its own airline, Etihad, which has ordered US$50 billion worth of jetliners.

Michael Wisbrun, managing director of SkyTeam Cargo, which includes the freight arm of Air France-KLM Group, told Arabian Business that such ambitious plans were of concern. “It will be tough. There’s no reason to have a hub in Qatar or the United Arab Emirates, and adding capacity with supply and demand as they are won’t help the equilibrium.”

There is need to question the sustainability of such growth, according to Wharton management professor Peter Cappelli. Speaking with Arabic Knowledge@Wharton about the Gulf airlines’ push to become a global hub for air travel, Cappelli noted that “only [a few] airlines in the world make money and the industry as a whole loses billions every year. Fundamentally, the nature of the industry is the problem: The marginal cost of filling an extra seat is almost nothing, so whenever the carriers have excess capacity, they have fare wars, and they all bleed to death. The only time any of them make any money is in the brief period in which demand is growing faster than capacity. Is there any reason to think that the carriers in the Middle East have somehow cracked this problem by spending more on new planes?”

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