RIYADH, 9 May 2003 — The toppling of Saddam Hussein has removed a major cause of uncertainty in the Gulf region, promising an economic windfall for the Arab countries struggling with their own structural defects.
Saddam’s 24-year iron-grip on power plunged the Arabian peninsula into three major wars, sharply increasing risk factors. “The removal of Saddam has erased a major cause of uncertainty for the region. This will greatly help in achieving stability,” leading Saudi economist Ihsan Bu-Hulaiga told AFP. “There is every reason to believe that the change in Iraq will be reflected positively on the economic growth in Saudi Arabia and the region as well,” said Bu-Hulaiga, a member of the consultative Shoura Council. One of the biggest Saudi financial companies, Riyad Bank, notes in its latest report that the removal of the Iraqi factor had an immediate impact. “The stock market is up, liquidity is at near-record levels, the private sector is buoyant, and interest rates are coming down,” Riyad Bank said.
Saudi and Kuwaiti stock markets, the first and second largest Arab bourses, have hit all-time highs amid hectic trading not seen for a very long time.
While Saudi Arabia maintained high double-digit gross domestic product (GDP) growth rates between 1971-81, exceeding 20 percent in some years, the trend reversed from 1982 until the end in 1988 of the Iran-Iraq war. Saudi GDP boasted six percent growth in 1989 and 23 percent in 1990, but declined again to 16 percent in 1991 as a result of the Iraqi invasion of Kuwait and the subsequent Gulf War that liberated the emirate. But the growth rate in Saudi Arabia and Gulf countries this year is set to be positive and higher than last year.
Riyad Bank estimated Saudi GDP growth rate this year at 4.5 percent, up from last year’s two percent, and negative growth in 2001.
Next year is tipped to be more prosperous still.
Neighboring Dubai, which has weathered the storms better than any in the region and is also looking to trade with the new Iraq, issued a wake-up call to the Arabs this week if they are to take full advantage. Crown Prince Sheikh Mohammad ibn Rashid Al-Maktoum told the Arab world to raise standards of accounting and transparency and move aggressively to identify business opportunities if it is to come up to speed and win badly-needed foreign investment. The call was followed by an announcement that Saudi Arabia, Bahrain and the UAE had proposed an Arab umbrella association to attract foreign direct investment.
The inflow of foreign and domestic investments into the Gulf region, mainly Saudi Arabia, was seriously curtailed by Saddam’s belligerence.
Saudi Arabia alone is estimated to have lost foreign and domestic investments worth $155 billion since 1981 because of regional tension, if total investments of $27 billion in that year were considered as the annual average, official figures show.
Total foreign and domestic investment in the Kingdom dropped sharply during the Iraq-Iran war, but peaked at $33 billion in 1991, to decline again during the 1990s, Bu-Hulaiga said. In 2001, investments reached $32 billion, an encouraging sign for the years to come, he said.
However Prince Abdullah ibn Faisal ibn Turki, chairman of the Saudi Arabian General Investment Authority (SAGIA) said he expected foreign investment would remain anemic in the near future due to a focus on reconstruction in Iraq. SAGIA was established three years ago with the aim of attracting foreign investment, but the Sept. 11 attacks and the US-led war on Iraq proved major setbacks.
Investments approved by SAGIA since Sept. 11 have reached only $4 billion, compared to $9.2 billion between April 2000 and early September 2001.