Term Paper: Economic Strategies in the Middle East What Emerging Strategy Is Winning

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Economic Strategies in the Middle East: What Emerging Strategy Is Winning?

This paper analyzes the drivers of economic growth in five Middle Eastern countries: Israel, Qatar, Dubai, Saudi Arabia and Kuwait. Despite the disparate nature of their economic and political strategies, all five countries are enjoying significant growth.

The strategies for growth are analyzed according to a set of indicators which indicate the future trajectory of these countries' growth rates, and the sources for this economic growth.

The paper concludes that four of the five countries will continue to enjoy significant growth rates. Saudi Arabia, however, will continue to struggle despite high demand and high prices for its primary extractive resources.

As knowledge-based industries and political stability grow in the other four countries, they should enjoy significant growth in their chosen strategies.

Introduction

Although they inhabit the same region, the six countries covered in this paper differ substantially in most key sources and uses of capital, economic drivers, and sources of future growth. This paper will analyze the various economic systems developed within the following countries: Israel, Qatar, Kuwait, Dubai and Saudi Arabia.

Each of these countries has vastly different natural resources, business cultures and human capital resources. All countries were united under the Turkish Empire, and later belonged to a British protectorate. For that reason, some commonalities exist in English fluency, connections to Europe, some aspects of governance, and attitude towards property and capital.

The differences are more compelling: Saudi Arabia is by far the largest producer of oil in the world, while Qatar has the third-highest gas reserves in the world behind Iran and Russia. Kuwait is the fourth-largest oil producer in the world. Kuwait and Qatar are small city-states with high per-capita income per resident. Saudi Arabia, Qatar and Kuwait heavily depend of immigrant labor for everything from menial tasks to top management and technical staff. Dubai and Israel have very few extractive resources, and depend on human capital, free markets and the wealth of other regions to bolster their economies.

This paper will argue that disparities in income between these countries, and future prospects for growth, depend more on human capital development, protection of private property and individual rights, and development of appropriate infrastructure than the amount of natural wealth they have developed.

Part of the exposition will include a score along certain measures of how each country is doing in important measures of economic development, and predict where each of the countries will be heading in the "race" for the best emerging strategy.

Review of Literature

There is a good deal more literature about war and peace in the Middle East than there is about their economic underpinnings. The governments of Dubai and Israel have a fairly sophisticated government statistical service, which reports a good deal of financial information. This is not as true in the other three countries, perhaps as an offshoot of their focus on extractive industries, and partially due to the small size of those countries.

A good place to start is with the fundamental economic and demographic statistics for each country. The Economist and the World Bank publish yearly updates on key measurements in these countries. Of particular interest are three measures today: literacy levels for men and women, and GDP per head (CIA, 2007).

Country

Literacy Men

Literacy Women

GDP/capita $ PPP

Unemployment%

Investment

Israel

Saudi Arabia

Dubai

Kuwait

Qatar

USA

By this measure, Dubai is winning the race. This is despite Dubai being relatively poor in extractive wealth, but being well-positioned in culture, location and the good fortune of its oil- and gas-rich neighbors. Other than a small oilfield that it shares with Saudi Arabia, nearly all (94%) of Dubai's GDP is generated by non-extractive industries. This next section will explore how each of these factors contributes to the success of each economy, and predict its direction for the future.

Literacy Men and Women

Two elements are important to analyze here: the absolute literacy of the country, and the difference in literacy rates between men and women. Of the countries listed, Saudi Arabia has by far the lowest literacy rate, and the biggest difference between men and women. With 25 million residents (and 5 million non-citizens working and living in the country), Saudi Arabia's poor literacy rate augurs poorly for the development of a local consumer economy and for its moves beyond pure extractive industries, such as oil and gas.

What higher education exists is generally poor, and does not prepare young Saudis for the workforce (Henry C., 2003). The high disparity between men and women also augurs poorly for the economic development of the country; Saudi Arabia is alone among these countries in having a substantial disparity between men and women of working age, with 1.3 men for every 1.0 women between 15 and 64 years of age. Those women who are in that age bracket tend far less to be employed than men, and men encounter a high unemployment rate which has not been reduced over the decades (CIA, 2007).

Kuwait, Israel and Qatar share high literacy rates, but are similar for different reasons. Israel has had a significant inflow of Russian Jews in the past decade, which may have artificially pushed down literacy for a time (Sharaby, 2002); the same in-migration has also benefited Israel's high-tech-led growth (which will be covered later in this paper). Kuwait and Qatar benefit from two items: relative equality between men and women (women have the right to vote in Qatar), greater job participation by locals, and free public higher education, including education abroad.

Dubai is somewhat of an anomaly in these statistics: its literacy rate is lower than every other country in this analysis except Saudi Arabia, but culture plays a role. in-desert Bedouins inhabit a part of Dubai, and they tend to have a lower literacy rate. Of greater interest in Dubai is the higher literacy rate for women than for men; this is an indication of the relative equality of men and women in the workforce.

Israel is the standout in education in the Middle East. A few statistics point to this dominance in education levels:

Israel has more PhD's per capita than any other country

Israel is 4th in the world in patents issued per-capita (ILSI, 2005)

High tech contributed one-third of Israel's GDP growth from 1990 to 2005 (Trajtenberg, 2005).

The USA is included in these statistics in order to provide a comparison with a country that, by all measures, continues to pursue a successful strategy for economic growth.

Unemployment Rate

Again, the standout for poor performance is Saudi Arabia. The actual number of un- and underemployed workers in Saudi Arabia may never be known. What is known is that many Saudis depend on their government for what amounts to welfare payments to keep peace in the Kingdom. With poor preparation for a career, most of the middle management positions are held by foreigners (except in those cases where Saudi Aramco and others require a percentage of Saudi employees and managers). The rate of under- and unemployment for women is not reported, but may be a key indicator of winning or losing economic strategy; as a comparison, the U.S. has a 77% participation rate by women in the workforce; this may be a key indicator of a 'winning' economic strategy.

Dubai, Kuwait and Qatar are clearly at and beyond full employment. The reasons for this are both demand- and supply-driven. On the demand side, the fast growth of each economy has created a need for well-trained middle managers. On the supply side, well-educated residents of each country are available to be hired, and therefore have their pick of positions within the economy. The greater participation of women in the workforce attests to both the supply (being higher) and demand (also higher) than neighboring Saudi Arabia.

Dubai, Kuwait and Qatar also share a high percentage of foreign workers in their economy, but in a different sense than in Saudi Arabia. All three countries' demand for foreign employees is driven by their high growth rates in "knowledge" industries. Dubai's growth in employment will be studied later in this paper, but it's primarily in the trading and banking areas. Kuwait and Qatar are growing primarily in the extractive industries, but their growth is partially shaped by the nature of their industrial expansion: both vertical integration into petrochemical products, and expansion of their LNG facilities, which require a great deal more engineering, capital deployment and expertise than Saudi Arabia's oil extractive industry. The nature of this industrial growth will be covered later.

Israel's unemployment rate is both helped and hurt by immigration and the make-up of its population. If one includes the West Bank, Jewish Israelis are in the minority within their own country (Sharaby, 2002). This means that a large, relatively uneducated Arab population exists alongside a large, first-world and highly-educated population which is driving employment and growth. In addition, Israel's in-migration of highly-educated Russians in the past 10 years has temporarily depressed the employment rate, but powered overall… [END OF PREVIEW]

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"Economic Strategies in the Middle East What Emerging Strategy Is Winning."  Essaytown.com.  August 3, 2007.  Accessed May 27, 2019.
https://www.essaytown.com/subjects/paper/economic-strategies-middle-east-emerging/143353.