Last year, which country claimed the title of the fastest-growing major economy in the world? Was it India, China, or one of the Asian tigers? Surprisingly, the answer is Saudi Arabia, boasting an impressive growth rate of 8.7 percent.
Until last month, the BRICS, a diplomatic organization comprising Brazil, Russia, India, China, and South Africa, conspicuously lacked members from the Middle East. This situation, however, has evolved. At its annual summit on August 22nd, the bloc extended invitations to six countries, and four of them- Egypt, Iran, Saudi Arabia, and the United Arab Emirates (UAE)- hail from the Middle East.
The past two decades in the Middle East have been characterized by discord and hopelessness. It all began with the ill-fated U.S. invasion of Iraq in 2003, setting off a chain of events leading to prolonged conflicts.
Despite comprising 6% of the global population, the Middle East only contributes 4% to the world’s economic output. Removing a few significant oil-producing nations from the equation results in a figure below 2%.
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Additionally, many areas in the region are experiencing stagnant or decreasing GDP per capita, while poverty rates have sharply risen, especially in Egypt and Lebanon, not to mention the war-torn countries of Sudan, Syria, and Yemen.
How is the Middle East detaching itself from external forces, and asserting its sovereignty?
There has been a consistent drive to decrease America’s military involvement in the Middle East. Joe Biden, the current president, however, does not appear to be pushing for democracy in the region.
America’s economic influence is also declining. IMF data reveals that in the past 30 years, the Middle East’s exports to China and India have soared from 5% to 26%, while those to Europe and America have plummeted from 34% to 16%. With trade amounting to roughly $87 billion in 2021, China has solidified its position as the Gulf states’ top customer.
Following a seven-year divide that contributed to fueling one of the region’s most intense conflicts, Iran and Saudi Arabia reestablished diplomatic relations this week. The ongoing eight-year struggle with Iranian-supported insurgents in Yemen posed a threat to oil facilities and diverted attention from the ambitious economic transformation agenda. The benefit Iran seeks is the easing of sanctions, even if it remains unofficial.
Saudi Arabia and the Gulf nations aim to develop close economic partnerships with China and forge robust security alliances with America. They aspire to maintain open diplomatic channels with all nations, including Russia and are forging stronger connections with India.
Middle East’s Move to Improve:
Booming oil market
With a focus on securing funds for a transition away from hydrocarbons, the region is actively working to strengthen its position in the oil and gas sector. Aramco, the Saudi state-owned behemoth, recorded an unprecedented profit of $161 billion last year, a substantial increase from its 2021 figure of $110 billion. It now has plans to increase its daily production capacity by 1 million barrels over the next three years, roughly equivalent to a 10% expansion.
The UAE shares a similar production goal and has strategically positioned itself as a key transit point for Iranian and Russian oil, both of which are under Western sanctions. Meanwhile, Qatar, already the world’s top liquefied natural gas (LNG) exporter, aims to increase its production by an impressive 63% by 2027.
Fresh Financial Allocations
Saudi Arabia has shifted its investment strategy away from parking petrodollars in American treasuries and is now actively acquiring assets such as European footballers and stakes in electric-car firms. This summer, the kingdom sealed a $2.6 billion agreement with Brazil’s largest mining company to invest $170 billion in the industry by 2030. Saudi has also bought a professional golf business.
Thriving Capital markets
During the first quarter of 2023, firms from Abu Dhabi accounted for 14% of all IPOs worldwide. Goldman Sachs, a prominent bank, has reported a substantial increase in foreign ownership of Middle Eastern equities. The Middle East’s growing significance in emerging-market indices is anticipated to reach 10% in the coming years, up from the present 7%.
Significant changes in domestic policies
The employment rate for Saudi women in the first quarter of this year reached 31%, marking a substantial rise from the 16% recorded in 2017.
The debt-to-GDP ratio in Egypt has surged to 93%, and a substantial 36% of these loans are in foreign currencies. Moreover, the currency has depreciated by 50% in the last two years and is likely to face another devaluation soon. In July, annual inflation reached an all-time peak of 38%.
Prince Muhammad envisions that annual foreign direct investment will reach $100 billion by 2030. This situation raises concerns on two fronts. Firstly, its financial stability is heavily dependent on oil markets, and analysts suggest that the kingdom faces a deficit when oil prices dip below $100 per barrel.
Second, Vision 2030, Saudi Arabia’s economic strategy, foresees tourism contributing 10% of the nation’s GDP by the decade’s end. Officials argue that this industry will produce one million jobs, sufficient to employ one in every 20 Saudis, a higher percentage than in France or Spain. However, there is minimal proof of the anticipated stream of 100 million annual visitors.
While there has been a period of relative calm in the Israeli-Palestinian conflict for the past two decades, it’s uncertain that this tranquility will continue forever. The eruption of a major conflict in the Holy Land may disrupt Arab-Israeli agreements.
The ultimate peril centers on the fact that America stands alone as a country capable and willing to exert military force, and its dominance in the global financial system gives it unmatched economic influence. The Gulf states cannot afford to jeopardize their association with America.
Back in 2017, Saudi Arabia’s Crown Prince and de facto leader, Muhammad bin Salman, articulated the view that “I believe the Middle East will become the new Europe, heralding the next global renaissance.” His statements are in harmony with a rising narrative in the Gulf region, emphasizing an economically-driven vision of a “new” Middle East, steering away from concepts like democratization, Islamization, or other distracting ideologies.
Additionally, the geographical location holds considerable importance, as it serves as a vital crossroads connecting Europe, Africa, and Asia. Roughly 30% of the world’s shipping containers traverse the Suez Canal in Egypt, while 16% of global air cargo transits through Gulf-based airports.
The concept of an era marked by peace and progress is certainly alluring. However, for this vision to become a reality the rulers in the region must show a genuine commitment. The existing conditions create a window for change, and technological advancements and geopolitical shifts act as compelling catalysts.