The impact of financial crisis on economic growth and Arab investments in the energy sector
Walid Khadduri Al-Hayat - 23/03/08//
What is the status of the Arab economy amidst the global storm of financial variables? More specifically, what is the status of investment in the Arab energy sector?
The Arab Petroleum Investments Corporation (APICORP) subjected these questions to significant analysis supported by documented figures in its last annual report published last week. As the case with this annual report is, it first started by explaining the status of the Arab economy on the global level. This chapter is particularly relevant given the sensitive nature of the current global crisis initiated by the US subprime mortgage disaster, the depreciation of the dollar against other currencies, the more recent collapse of several major American banks, and the anticipation that the worse is yet to come. The crisis is also likely to worsen with the prediction that numerous consumers will not be able to pay substantial portions of their credit card debts. It is not surprising, therefore, that some consider this crisis to be the worst and most serious since the 1930s.
The authors of the report believe that with the expanding process of globalization, eminent dangers are also expanding and spreading rapidly through various world economies, although in varying degrees. Considering the recent and current regional developments, risks to the Arab region seem to be relatively lower than those in other world regions. The report also adds that "the region's economy, which has benefited from sustained high oil prices, has continued to perform remarkably well. However, with the weakening of the US economy and the slowing of global growth, the balance of risks to the Arab energy investment
outlook has tilted further to the downside."
The report also points out that the Arab region has posted a growth rate of 6.4% over the past five years. At the same time, however, it predicts that this rate will decline to 5.9% in 2008. Oil-exporting countries are likely to record higher growth rates than the rest of the region, primarily as a result of high oil prices.
The APICORP report warns that inflation in the Arab region has risen to 8.5% in 2007, although it remained lower in oil-exporting nations. The report also mentioned that the impact of the depreciating dollar and inflation on consumers varied from one country to another, ultimately depending on each country's economy and the resilience of its economic sectors. At the same time, the report asserted that with the growing effects of inflation as a result of growing demand and import prices, controls have been introduced to these elements, mainly in the form of increasing infrastructure expenditures, rather than focusing on exchange rate policies.
The report also focused on a serious and chronic phenomenon in the Arab world, namely the rising unemployment rate. In this context, it states that "Despite sustained growth, unemployment and underemployment have remained relatively high". Unemployment rate in the Arab world ranges between 12% and 15%, with variations noted across countries. The report further warned that "average unemployment, points to a major structural problem, which is the degree of economic diversification."
The report did not fail to depict the impacts of growing oil rents. This phenomena has led to improving the financial situations of oil-producing nations which took advantage of this opportunity to reduce their public debt levels from approximately 60% of GDP in 2002 to almost 27% of GDP in 2007. Yet, at the same time, this was accompanied by a decline in foreign currency reserves in some oil-producing countries despite the growth of aggregate reserves to $926 billion in these countries. In this respect, APICORP is concerned that the amount of foreign currency reserves cover allocated to cover imports has declined from 22 months in 2005 to almost 13 months in 2007 as a result of the simultaneous increase in the volume and value of imports entering the Arab region.
Investments dedicated to the energy sector between 2008 and 2012 have reached almost $420 billion for the entire Arab world, representing an increase of 22% for the period from 2007 and 2011 in which allocated energy sector investments had reached $345 billion. It is noticeable that 44% of these investments are allocated for the oil sector, including oil extraction and marketing in addition to constructing petrochemical plants. The figures also indicate that over half the Arab energy investments are concentrated in three countries, namely Saudi Arabia ($105 billion), Qatar ($65 billion) and the UAE.
Needless to mention, APICORP was established in November 1975 by virtue of a resolution by the Ministerial Council of the Organization of Arab Petroleum Exporting Countries with a capital of over one billion dollars. With headquarters in Khobar, Saudi Arabia, APICORP is the only Arab foundation that conducts annual assessment of investments in the Arab energy sector. Its studies cover the fields of petroleum, gas, petrochemicals and electricity. In Arab libraries, APICORP's annual report has become an important and reliable reference for specialists and experts.
*Energy Expert
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