The Gulf States have been less affected by the global economic downturn than many other countries. This is the overall picture. However, in the context of the Gulf countries, the ongoing financial crisis has impacted some states more than it has others depending on the respective level of economic openness and the volume of its natural resources. Qatar and the United Arab Emirates are classic examples. Qatar, backed by its gas reserves was much less affected than the UAE. Likewise, within the UAE itself there are stark differences. Dubai was hit hard by the crisis yet Abu Dhabi, continues to be in a stronger position than its sister emirate.
Qatar’s economy: remains robust cushioned by its gas reserves
Qatar’s economy remains robust and in a more stable position than its other neighbours. Such stability is a result of both Qatar’s conservative approach towards investment and the revenue from natural gas which cushions its economy. In fact, according to the IMF Qatar’s economy is expected grow in 2009 by 29 per cent. Some political analysts believe the IMF’s figure is exaggerated. More conservative predictions expect the Qatari economy to grow by 9.4 to 10 per cent.
An important factor that contributes to the Qatari economic growth during the global crisis is the gas production. Qatar’s plans to double its production capacity in 2009. To this end, on April 6, 2009, Qatar inaugurated its Qatargas 2 project, which created a fully integrated value chain comprising three different offshore platforms.
Qatari banks adopt a conservative approach and the Qatari government is more involved in monitoring its local banks than the other states. Yet Qatar has not been immune from the credit crunch. Investment losses increased resulting in loans becoming less available. The impact of the crisis is evident in the Qatari government’s announcement in March 2009 that it would buy 6.5 billion Riyals (US$1.79 billion) of its local banks’ shares in order to boost its economy and promote confidence in the banking sector.
UAE’s economy as a whole in a better position than Dubai
The UAE’s federal political system makes it possible to track the affect of the global crisis on each of its autonomous emirates.
The impact on the UAE as a whole might have been overshadowed by the media focusing on the grim situation of one of its more popular emirates, Dubai, which was hit the hardest by the global financial crisis. Dubai’s crisis has impacted the UAE’s economy as a whole. UAE is now facing an economic slowdown. According to the IMF, due to the fall of oil prices, its economy growth is expected to slow by 3.3 per cent. UAE officials however, express optimism that the country’s economy would overcome its current economic crisis.
In an attempt to boost confidence in UAE’s economy, the Emirati government stated on more than one occasion that the country’s economic situation was often exaggerated. In a Gulf News interview on March 15, 2009, UAE President Sheikh Khalifa Al-Nahyan stressed that the impact of the economic downturn on UAE’s economy was misunderstood and exaggerated. Sheikh Khalifa expressed his confidence in his country’s ability to contain the repercussions of the global financial crisis and to maintain its reputation and position on the world investment map. Many public statements were issued by UAE’s government to assure the public of the country's economic stability, its ability to overcome the financial crisis and to stress the government’s close monitoring of the economic indicators. The Minister of Economy Saeed Al-Mansoori expects the economy to grow in the second half of this year and with prospects of a better economic growth prospect in 2010.
UAE also utilised more practical methods to address the crisis. The Emirati Central bank for example, pledged US$32.7 billion of the state’s funds to boost the local banks’ liquidity, to reduce the impact of the financial turmoil.
Dubai: the Real Estate Industry’s crisis
Dubai does not have any natural resources unlike Abu Dhabi and Qatar. Its economy is built on real estate, tourism and its financial markets. Nevertheless, it was able to prosper and excel and become an ideal city in the region. Dubai’s liberal diversified approach, opening up its gates to foreign investment more than other states led to its economic prosperity. This, however, meant that, Dubai became more susceptible to global economic turmoil.
After a six-year boom in the real estate sector it faced what might seem more of a correction process. The prices in the real estate sector were reduced by more than 30 per cent, an action that government officials and financial experts saw as a normal correction of the real estate market that reached its peak. The fall of the real estate industry left about 180 construction projects delayed or suspended.
The real estate crisis caused panic among the foreigners, and doubts about the future prospects of Dubai. Due to the high rate of job losses which left many with high debts, many foreigners fled Dubai, unable to pay back their debts and afraid of imprisonment. Reports in the media stated that more than 3,000 cars were abandoned by foreigners at the airport. The figure is contested with the Emirati government insisting that the actual figure is much less than that. Resulting from the large number of foreigners affected by Dubai’s crisis, there has been aggressive international media coverage of UAE’s economy, describing its previous prosperity as being an end of an era.
In an attempt to save Dubai’s economy, the Emirates Central bank bought from Dubai government bonds amounting to US$10 billion as a means to boost Dubai’s liquidity. Abu Dhabi provided Dubai with a bailout, the US$10 billion bonds are to be paid within five years at 4 per cent each year.
Despite the different economic situation in each Gulf State, the Gulf countries appear to share the international community’s more conservative approach in handling the global economic crisis, utilising more government intervention and more government spending to help sustain the economic stability and to boost the economies that are facing crisis.