The region faces a steep climb to restore pre-recession levels of economic growth, a panel of economists told the inaugural meeting of the Arab Global Forum this week.
Recovery offers opening to region
Some countries, including Morocco and Tunisia, have fared well through sound investments and government reforms, the economists said. Some oil-producing countries, meanwhile, reduced the effects of the crisis by maintaining public expenditure in the face of declining revenues. "Because they continued to spend, this limited the effect of lower oil prices," said Masood Ahmed, the director of the IMF's Middle East and Central Asia department.
In the broader region, problems that have long plagued Middle East economies remain and will continue to hamper recovery. These include a lack of government transparency, unpredictable government policies and fragmented markets. The global recession has taken its toll on the Middle East. Unemployment, as in many parts of the world, has risen and regional economies on average are expected to achieve growth of 2.2 per cent by the end of this year compared with 6 per cent last year.
Perhaps the most prominent example of the downturn came last month when Dubai World announced its decision to seek a restructuring of US$26 billion (Dh95.49bn) in debt, sending a jolt through global markets. There is reason, however, to be hopeful about the outlook for Middle East economies, said Juan Jose Daboub, the managing director of the World Bank. The recession could bring an "historic opportunity" for new investment and sweeping reforms in the region.
"Why can't the Middle East become one of the new poles of growth?" said Mr Daboub. "I think it can." The forum - which was billed as a chance for US and Arab business leaders to build partnerships - came almost six months to the day after Barack Obama, the US president, gave his speech in Cairo promising to "deepen ties" between US entrepreneurs and those from "Muslim communities around the world".
But organisers of the meeting said progress on that front had been slow. "Very little has been accomplished on the ground," said Shafik Gabr, the founder of Egypt's International Economic Forum and co-founder of the Arab Global Forum. "We are here to participate in this new beginning." "We need to make sure that the tremendous stimulus created by President Obama's speech is not lost in the sands," said Claude Smadja, the forum's other co-founder and former managing director of the World Economic Forum.
While the aim was to forge new partnerships, much of the discussion centred on how Dubai World's restructuring might change the landscape of foreign investment in the Middle East. Mr Ahmed said that while the immediate ripple effect of the news on world markets had been contained, the request for the restructuringwould "hold back" the UAE's prospects for growth. The IMF recently revised its growth projection for the UAE to be "significantly" lower than the 3 per cent it forecast in October.
Mr Ahmed said the setback also would end an era of investors backing UAE-based companies "without really seriously looking at their financials". Future investors, he said, would be more diligent about seeking basic financial information from companies in which they invest, such as assets and liabilities and whether the company was backed by sovereign guarantees. "As we move forward, people will want to have more transparency and clarity," he said.
"From our point of view, we think that is actually a good thing." Dubai World's restructuring also is likely to affect the Islamic bond market, Mr Ahmed said, leading to a new clarification of investor's rights, which have not been firmly defined. "The legal framework for that is going to have to be worked through with much greater clarity," he said. "How that's clarified, and how quickly, how effective, how satisfactorily that's done will determine what is the appetite and the risks associated with these bonds."