This week's The Economist has a cover story on "The rise of the Gulf" (click here), which presents a good overview of the issues associated with the economic boom.
Friday, 25 April 2008
The rise of the Gulf
This week's The Economist has a cover story on "The rise of the Gulf" (click here), which presents a good overview of the issues associated with the economic boom.
Wednesday, 23 April 2008
GCC Chartbook
I'd highly recommend anyone interested to take a look at Deutsche Bank's "GCC Chartbook: A visual essay" - a really good guide to the economic state of the GCC.
Money can't buy happiness...
The old adage is true - money can't buy happiness (at least in the GCC). A survey by Maktoob research (here) suggests that Omanis are the happiest people in the Gulf. Interestingly enough, they are also the poorest in terms of GDP per capita. In fact, it turns out that the simple relationship between GDP Per capita and Happiness in the Gulf is relatively flat, and, if anything, slightly negative. The policy implication of this is not, however, that countries should aim to decrease their GDP! But it does highlight that consideration should be given to the environmental and social effects of rapid economic change. For your convenience I've produced a chart of the results below:
Sources:
Happiness: Maktoob Research
GDP data: CIA World factbook
Update: Some people are wondering about the more general relationship between income and happiness - here it is, from the world values survey (click on chart to enlarge):
Sources:Happiness: Maktoob Research
GDP data: CIA World factbook
Update: Some people are wondering about the more general relationship between income and happiness - here it is, from the world values survey (click on chart to enlarge):
Tuesday, 22 April 2008
A shift in Saudi oil policy?
A letter in today's FT points out what the author calls a new 'aggressive' shift in Saudi oil policy in limiting new oil production capacity from becoming operational, and are shifting market perception towards the idea of Saudi oil supply being limited. Interestingly, the author points out that the Saudis are encouraging the idea of new supplies from the 'oil sands':
To the extent that 'oil sands' would raise the international price of oil in a world with growing demand - this seems to be a valid point.
The Saudi's 'aggressive shift', however, only looks 'aggressive' when compared with the author's benchmark of 13m b/d capacity. Against a benchmark capacity of 10-10.3 m b/d, as some analysts estimate, the Saudis would look more dovish.
Update: King Abdullah's increasingly publicised comment "I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'" (quoted by Reuters) is stirring up quite a bit of reaction - here is a list of comments and reactions made by various analysts. Expect this "quiet bombshell" of a quote - supposedly indicating Saudi unwillingness to help ease oil prices and complicity in creating a recessionary environment in the west - to be the subject of political rhetoric in the US presidential race if (when?) the price of oil goes past the $125-130 mark. The hawks in Washington will find this easy to brandish about as 'evidence' if Saudi Arabia becomes an issue in the presidential campaign (which will probably be the case if incriminating evidence is found as part of ongoing probes into BAE's dodgy arms deals with the Saudis).
The comment, incidentally, was made by King Abdullah during a meeting with the interior minister, and has actually been misquoted. The link to the original story by the Saudi Press Agency (SPA) - which Reteurs cite as the source of the comment - is here. The acutal quote, from the original story, is as follows:
There was no "with grace from God" in the original quote, it seems to have been penciled in by the Reuters journalist.
"Conceding to oilsands suggests an inability to produce enough to prevent investment in this competing source, and perhaps also a recognition that having this expensive alternative as the price-setting mechanism in the long-term oil market is a positive development for prices."
To the extent that 'oil sands' would raise the international price of oil in a world with growing demand - this seems to be a valid point.
The Saudi's 'aggressive shift', however, only looks 'aggressive' when compared with the author's benchmark of 13m b/d capacity. Against a benchmark capacity of 10-10.3 m b/d, as some analysts estimate, the Saudis would look more dovish.
Update: King Abdullah's increasingly publicised comment "I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'" (quoted by Reuters) is stirring up quite a bit of reaction - here is a list of comments and reactions made by various analysts. Expect this "quiet bombshell" of a quote - supposedly indicating Saudi unwillingness to help ease oil prices and complicity in creating a recessionary environment in the west - to be the subject of political rhetoric in the US presidential race if (when?) the price of oil goes past the $125-130 mark. The hawks in Washington will find this easy to brandish about as 'evidence' if Saudi Arabia becomes an issue in the presidential campaign (which will probably be the case if incriminating evidence is found as part of ongoing probes into BAE's dodgy arms deals with the Saudis).
The comment, incidentally, was made by King Abdullah during a meeting with the interior minister, and has actually been misquoted. The link to the original story by the Saudi Press Agency (SPA) - which Reteurs cite as the source of the comment - is here. The acutal quote, from the original story, is as follows:
"I do not hide when new discoveries were found, I told them, let them remain in the ground for our children and grandchildren who need them."
There was no "with grace from God" in the original quote, it seems to have been penciled in by the Reuters journalist.
Monday, 21 April 2008
Build it so it doesn't break!
The Gulf's capital and financial markets are booming - there's plenty of liquidity sloshing about in the region due to the oil boom, stock markets are soaring, property prices are soaring and economies are being privitised and liberalised. Most major Western banks are now have offices either in Dubai, Doha, Bahrain or all three. Goldman Sachs has acquired a stake in the National Commercial Bank of Saudi Arabia, and Morgan Stanley has bought off The Capital Group (Saudi Arabia) to gain access to the Saudi markets. This influx of foreign firms and capital has been hastened by the ongoing 'credit crisis' in the West.
It is critical that the Gulf states manage this economic change wisely by building a sound regulatory and institutional structure. This is extremely important in the case of financial services - the crisis in the West, due in part to preventable circumstances - should make this clear. Willem Buiter, Professor at the London School of Economics, highlights the failure of the western financial model in an article in the FT - these failures include, according to Prof Buiter, myopia, opportunism, a homogeneity of outlook and zealous opposition to regulation.
It is vital that the very banks that have crippled the financial system in the West are not allowed to act in the same, irresponsible ways in the Gulf. Unfortunately, though it is perhaps too early to tell, the signs are that the Gulf states risk importing the flawed financial system of the West wholesale. The extreme competition between Dubai, Doha and Bahrain to attain the status of the region's premier financial hub only exacerbates this danger. Other than providing infrastructure, the main incentive these centres can use to attract banks is regulation - the lighter the regulation the more attractive the location becomes for a bank. In addition, if their regulatory regimes are not coordinated the prospect of regulatory arbitrage in a GCC common market or monetary union becomes all the more likely.
Importing a flawed financial model wholesale, and doing it improperly (by allowing regulatory arbitrage and other loopholes) will mean that the Gulf's financial markets will ultimately prove to be a barrier to economic progress - the financial market's role is to allocate financial resources in the most efficient way - and if this same market is systematically mis-allocating resources then the productive capacity of the Gulf will be severely diminished.
Update: An anonymous reader points out that Bahrain is the preferred choice for most financial institutions prefer Bahrain as their location in the Gulf. It is certainly true that Bahrain has historically been the pre-eminent financial hub of the Gulf region due to its relatively sophisticated regulatory structure, although it is questionable whether Bahrain still retains its pre-eminence. It would be interesting to see how financial institutions leverage differences in regulation in a common market or monetary union in the GCC.
It is critical that the Gulf states manage this economic change wisely by building a sound regulatory and institutional structure. This is extremely important in the case of financial services - the crisis in the West, due in part to preventable circumstances - should make this clear. Willem Buiter, Professor at the London School of Economics, highlights the failure of the western financial model in an article in the FT - these failures include, according to Prof Buiter, myopia, opportunism, a homogeneity of outlook and zealous opposition to regulation.
It is vital that the very banks that have crippled the financial system in the West are not allowed to act in the same, irresponsible ways in the Gulf. Unfortunately, though it is perhaps too early to tell, the signs are that the Gulf states risk importing the flawed financial system of the West wholesale. The extreme competition between Dubai, Doha and Bahrain to attain the status of the region's premier financial hub only exacerbates this danger. Other than providing infrastructure, the main incentive these centres can use to attract banks is regulation - the lighter the regulation the more attractive the location becomes for a bank. In addition, if their regulatory regimes are not coordinated the prospect of regulatory arbitrage in a GCC common market or monetary union becomes all the more likely.
Importing a flawed financial model wholesale, and doing it improperly (by allowing regulatory arbitrage and other loopholes) will mean that the Gulf's financial markets will ultimately prove to be a barrier to economic progress - the financial market's role is to allocate financial resources in the most efficient way - and if this same market is systematically mis-allocating resources then the productive capacity of the Gulf will be severely diminished.
Update: An anonymous reader points out that Bahrain is the preferred choice for most financial institutions prefer Bahrain as their location in the Gulf. It is certainly true that Bahrain has historically been the pre-eminent financial hub of the Gulf region due to its relatively sophisticated regulatory structure, although it is questionable whether Bahrain still retains its pre-eminence. It would be interesting to see how financial institutions leverage differences in regulation in a common market or monetary union in the GCC.
Sunday, 20 April 2008
What the numbers tell us...
The Abu Dhabi Tourism Authority (ADTA) revised their targets for their 5-yr plan for the development of the tourism industry.
The plan is to increase capacity to 25,000 hotel rooms by 2012, with annual tourism coming to 2.7 million p.a. Currently, official figures estimate that there are 1.4 million 'tourists' (are the figures for tourists only or for the total no. of tourists plus businessmen) per month coming to Abu Dhabi. What do these numbers tell us?
Assuming an average of 80% occupancy rate, average hotel room capacity of 1.5 people (not every room will be accommodating 2 people), I've calculated that the average time a tourist spends in Abu Dhabi is 3.7 days.
In 2012, assuming the same 80% occupancy rate, we get that the average tourist will spend 4 days in Abu Dhabi. Just 0.3 days more. What does this imply? Does it imply that all those billions ADTA is investing result in just an extra 0.3 days of leisure activity? Not necessarily, it could mean that the nature of the current 3.7 days of leisure activities is being changed too. Nonetheless, it would be very interesting to have a look at the assumptions and statistics behind their plans.
Are the projections realistic? I'm skeptical - Abu Dhabi is trying to market itself as an 'upmarket' cultural tourist destination by building art galleries, museums etc. (The city bought the right to showcase works from the Lourve Museum in Paris in Abu Dhabi) But wouldn't upmarket tourists wish to go to destinations with historical heritage and character, rather than an artifically manufactured version of Paris in the Middle East?
The plan is to increase capacity to 25,000 hotel rooms by 2012, with annual tourism coming to 2.7 million p.a. Currently, official figures estimate that there are 1.4 million 'tourists' (are the figures for tourists only or for the total no. of tourists plus businessmen) per month coming to Abu Dhabi. What do these numbers tell us?
Assuming an average of 80% occupancy rate, average hotel room capacity of 1.5 people (not every room will be accommodating 2 people), I've calculated that the average time a tourist spends in Abu Dhabi is 3.7 days.
In 2012, assuming the same 80% occupancy rate, we get that the average tourist will spend 4 days in Abu Dhabi. Just 0.3 days more. What does this imply? Does it imply that all those billions ADTA is investing result in just an extra 0.3 days of leisure activity? Not necessarily, it could mean that the nature of the current 3.7 days of leisure activities is being changed too. Nonetheless, it would be very interesting to have a look at the assumptions and statistics behind their plans.
Are the projections realistic? I'm skeptical - Abu Dhabi is trying to market itself as an 'upmarket' cultural tourist destination by building art galleries, museums etc. (The city bought the right to showcase works from the Lourve Museum in Paris in Abu Dhabi) But wouldn't upmarket tourists wish to go to destinations with historical heritage and character, rather than an artifically manufactured version of Paris in the Middle East?
The need for a National Economic Development Strategy
The Abu Dhabi Tourism Authority's (ADTA) need to deny 'allegations' that it is 'competing' with Dubai for tourists highlights the lack of a coherent national economic development strategy for the UAE. Given that the total population of the UAE is approximately 4.4 million (with Emirati citizens only making up 20% of that figure) it is quite puzzling that there doesn't seem to be talk of economic development at the national level. Rather, the economic development of the UAE is being discussed at the level of an emirate (avg pop. less than 1 million), with the potential for conflicting economic strategies as implied by the Tourism Authority's statement.
This state of affairs is presumably due to the semi-autonomous nature of the various emirates - each with their own ruler. There is a danger that the UAE's disjoint system of economic policy planning will lead to wasteful replication, competition between different emirates, and the inability to take advantage of economies of scale. (Does the UAE really need two stock exchanges, with all their corresponding fixed costs?)
This state of affairs is presumably due to the semi-autonomous nature of the various emirates - each with their own ruler. There is a danger that the UAE's disjoint system of economic policy planning will lead to wasteful replication, competition between different emirates, and the inability to take advantage of economies of scale. (Does the UAE really need two stock exchanges, with all their corresponding fixed costs?)
Subscribe to:
Comments (Atom)