Higher oil prices boost AGCC income by $246 million a day

DUBAI AGCC states are earning an additional $246 million a day as a result of higher oil prices, compared with February 2002, a leading Saudi Arabian-based economist yesterday told delegates attending the International Islamic Finance Forum in Dubai.

By A Staff Reporter

Published: Thu 27 Feb 2003, 3:12 AM

Last updated: Wed 1 Apr 2015, 8:24 PM

Brad Bourland, chief economist at Riyadh's Saudi American Bank (Samba), said higher oil prices, currently at $ 36.61 compared to $20.24 a year ago, are driving strong liquidity growth in the AGCC states for the second year running.

Forecasts produced by the bank show that AGCC states' GDPs will grow by an average of 3.6 per cent in 2003, compared with 2.2 per cent in 2002. The UAE and Bahrain will lead the way with GDP growth of 4.5 per cent, followed by Qatar, four per cent, Saudi Arabia, 3.9 per cent, Oman three per cent and Kuwait two per cent.

"Liquidity growth and low interest rates mask the structural weaknesses that are chronic in Arab world economies, which are still growing slower than their populations and labour forces. In addition governments rarely exercise strong fiscal discipline, resulting in worsening government finances," Bourland said.

According to figures collated by Samba, only Bahrain's GDP grew faster than the size of its workforce in 2002. In Kuwait and Oman workforce growth exceeded GDP by 0.4 per cent; in the UAE by 1.5 per cent; in Saudi Arabia by 4.2 per cent and Qatar by 5.1 per cent.

In addition, Bourland said, five of the six AGCC governments ran a fiscal deficit, as a percentage of GDP in 2002. Only Qatar recorded a surplus of 1.2 per cent, according to Samba's figures. Elsewhere, Kuwait's deficit was -8.8 per cent; Saudi Arabia's -3 per cent; UAE's -1.5 per cent; Oman's -0.7 per cent and Bahrain's -0.5 per cent.

"Because AGCC economies are not performing to their full potential, the result is high and rising unemployment rates," Bourland said.

Samba figures show that the UAE has the lowest unemployment rate in the AGCC, at 2.6 per cent of working-age population. Elsewhere in the region the jobless percentage is: Oman, 17.2 per cent; Saudi Arabia 13 per cent; Kuwait, 7.1 per cent; Qatar 5.1 per cent and Bahrain 3.1 per cent.

The prime concern is of a potential employment crisis in the years ahead because the oil boom, starting in 1973, has created a baby boom, at a time when death rates in the region have fallen substantially. In Saudi Arabia, although there is almost full employment in the 30 years plus age group, the challenge is coming down the road because the economy is not creating enough jobs, for the millions of males aged 0-19 years. This kind of youth bulge profile is common throughout the Arab world and is very worrisome, given that Arab economies are not growing fast enough to accommodate current new entrants to the labour market," Bourland pointed out.

He also said that although the replacement of expatriate workers by nationals provides some relief it is not a cure for growing unemployment.

"If you replace an expatriate with a national you are simply swapping one worker for another. You are not creating new jobs. In addition, many low wage, unskilled jobs are not attractive to nationals. There is a danger that a well intentioned policy, if not properly structured, could destroy more jobs than it creates, by introducing rigidity into the labour market," he said.

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