History is a series of unbroken links between the past, the present and the unknown future.
With the help of the known we learn about the unknown. From the lessons from the past we correct our present. The lessons from the past and present help us predict about the unknown future.
When we attempt to trace the contours of the economic future of the six-member Gulf Cooperation Council we would have to speak in generalized terms overlooking individual differences of each member country. A broad view of their state would in no way distort the final image.
The picture of the Gulf economy 20 years ahead would be hazy particularly in the backdrop of the prevailing explosive political and social situation in the region.
Economics has a predisposition to make pessimistic predictions about the future. It warns about economic catastrophes before they occur. If things happen as they predicted the economists would say did we not tell you beforehand. If nothing of their dire forecasts materialized every one would be relieved and thank God for averting the calamity.
I don’t subscribe to the Malthusian concept of growing population leading to wars and famines and consequent economic woes. I believe that our future would mostly be similar to the past and changes would be happening at rather a slow pace.
My expectations about the Gulf economy is close to the Davos projections about it that the region would keep a medium pace of progress without any miraculous event pushing it to either direction over the next 20 years barring a few developments here or there. The slow growth rate would largely be thanks to the conservative nature of the policies of these states.
So, I do not see any radical or unexpected change in store for the region. Over the past 50 years the Gulf countries have undergone unbelievable changes spurring a leap from the 10th century life style to the civilization of 20th century. I don’t expect the events of the next two decades would surpass this spectacular feat. The ground realities in the present Gulf and rest of the world, on the other hand, do not indicate that its progression would be in the reverse direction to the deserts of 50 years ago.
Petrol is the backbone of the Gulf economy. The region owes its growth and prosperity to the oil revenue particularly with the sharply rising oil prices since the middle of the 20th century. The situation is most likely to continue in the same pattern over the next 20 years as well. All their efforts to diversify or change their income base would never replace the prime role of the oil. With a thin indigenous population the GCC countries depend on imported labor for their economic development. The annual population growth will shrink from 3 — 4 percent to 2 percent. While the rate of local workers would visibly increase, it would not be enough. Most countries are likely to experience unemployment for want of qualified hands. The Gulf economy, currently tied up with the West, will gradually shift their links to the emerging Asian economic giants such as China and India.
A major challenge that the region would face in the next decades would be the shortage of water. Most of the present water resources are fast depleting. The only alternative is the expensive desalination of seawater. But in the event of a sharp fall in petroleum revenues, the depleting water level would pose one of the toughest challenges in the region.
Water depletion is an international phenomenon that could break out wars between various countries. However, the issue is not novel in the Gulf region and the people know how to face the challenge. As long as there is money in our pockets, we can continue drinking the expensive desalinized seawater.
However, no substitute is likely to replace the petrol as the major source of energy in the period. Even if anything new were invented industrial establishments would require at least 25 years to readjust to it. So I would emphasize that the Gulf states need not fear that any lack of demand for petroleum would destabilize their future. On the other hand, there is no guarantee that they would be immune to short or medium term economic upheavals. A looming war between Iran and US, the instability in Iraq, Lebanon and Palestine are factors that could destabilize the whole region.
A $100 per barrel in 2008 would be in real terms equal to $35 in 1980. If the same price progression continues, a barrel of crude would fetch $150 in 2025.
The population factor always makes the economic prediction difficult. It is not easy to predict how individuals and groups would react to economic and political events. While the population supplies the required manpower for production, it eats away the benefits of general achievements. The population in the region grew from 8.2 million in 1970 to 37 million in 2006. It is expected to reach between 50 million and 53 million after 20 years. The unemployment level in the Gulf countries would worsen over the next decade largely thanks to the education system that gives greater stress on quantity rather than quality. The system would fail to provide skilled local workforce that would quicken economic activities. I hope that the education system would be corrected and the gap between the poor quality of the local workers and the demand for the skilled would eventually be bridged when the society realizes the close link between the unemployment and the faulty education system on the one hand and on the other the link between unemployment and escalating social problems.
The menacing unemployment situation would force the governments in the region to replace the expatriate workers with local hands though it may slow down the economic progress initially. The situation would also warrant radical changes in their education system. The population growth would also demand greater attention to health care, education, water, electricity, sewage, transportation, telecommunication and housing. The problems in these areas have already reared their ugly heads and would only exacerbate if left unattended.
The rising per capita income due to the rise in the crude price will spur price rise which would in turn trigger inflationary trends in the next decades which has already observed to have affected the lives of the people in the region. The situation would lead to reduced purchasing power and falling living conditions of the people particularly of the limited income group. Their difficulty to make both ends meet would in turn lead to the decadence of the moral values and increase the crime rates.
The rising life span of the population in the region would demand more facilities for the care of the aged and the retired people. The required level of sustained growth could be guaranteed with constructive reforms in the general education sector, plus reforms in economy, politics and administration. However, bureaucracy and red-tape would be two impediments on the road to reforms in the Gulf.
An ambitious new generation with its wider international contacts will be at decision-making positions in 20 years hence.
However, at the conclusion, I believe that most of the Gulf countries will learn how to tackle the future challenges and adapt with the new developments on the basis of their experiences over half a century.
(Dr. Wadea Ahmad Kabli is professor of economics at King Abdul Aziz University, Jeddah)
