Bracing for change in the Gulf

Ahmed Mostafa , Tuesday 19 May 2020

The Gulf countries are unlikely to be able to return to what they were before the Covid-19 pandemic as a result of major economic shifts in the region, writes Ahmed Mostafa

Bracing for change in the Gulf
Two Emirati women wearing face masks in a largely empty Dubai mall (photo: AP)

As the world prepares for a new phase in the fight to contain the coronavirus pandemic, the Gulf region is still seeing a rise in infection cases. Yet, its countries are on the verge of easing lockdown restrictions to get their economies moving again while taking precautionary measures to avoid the exponential spread of the virus.

Over the last couple of months, restriction measures have helped to avoid large numbers of infections and deaths in the Gulf Cooperation Council (GCC) countries, but they have also severely hurt their economies and led their governments to take unprecedented measures to reduce budget deficits accrued as a result of financial aid to sectors suffering as a result of the lockdown.

Now, with the world gradually opening up in guarded steps, the Gulf countries will also need to ease their restrictions. Dubai in the UAE is preparing to open up its skies to visitors again, for example, and it is working on measures to ensure safe air travel and new protocols for hotels, restaurants, malls and other tourist attractions.

Though the Dubai Expo2020 has been postponed until next year, the country needs to gradually build up for the major benefits that are expected when it welcomes visitors to the event in October 2021. With the majority of businesses in Dubai relying on expatriate workers and millions of tourists, getting the economy back into action will require reopening the country’s skies and borders.

Dubai is one example of preparing to live with the virus and for the return of some normality to kickstart the idling economy. Oman also relies on tourism as a source of income that was meant to increase with the country’s declining oil revenues due to drops in prices and decreased production. But it might be difficult for Oman to reopen to tourism soon, and it is likely to suffer not only economically but also socially as many families rely on tourists for an income.

Even Saudi Arabia, which is at an early stage of attracting tourists in the course of its economic diversification away from oil, will be hurt during the second phase of the pandemic. If the hajj, the Muslim pilgrimage to Mecca, in August is cancelled, the country will lose more revenue than it lost in cancelling the umra, the minor pilgrimage, in the Holy Month of Ramadan. Both religious events generate some $10 billion for the Saudi economy.

Meanwhile, governments in the Gulf are starting to adjust in a way their populations may not have anticipated. The Omani government has asked its departments to cut their budgets to the tune of around 15 per cent, though even this will not be enough to balance the country’s budget deficit. Bahrain has already announced a 30 per cent cut in public spending.

Both Oman and Bahrain have provided packages to help their economies amounting to almost 30 per cent of GDP, which will lead to budget deficits close to two-thirds of their GDP. Borrowing is a difficult option in the current circumstances, with the world entering a credit crunch, and foreign investors may be reluctant to buy Omani or Bahraini government bonds.

Qatar’s government is postponing contracts on capital expenditure projects worth $8.2 billion. Kuwait is looking for ways to plug its deficit, which now stands at more than half the country’s reserves. The government might resort to cancelling large capital projects to reduce the deficit and wait for revenues to flow into the exchequer from the money that Kuwaiti tourists will not be spending overseas this year.

The Saudi government has announced plans to triple the country’s value added tax (VAT) from five per cent to 15 per cent and halt handouts to citizens as part of the new austerity measures. Government projects have been “delayed,” Saudi officials say, not “paused,” including some major projects meant to diversify the economy. One example is the futuristic Neom smart city in the northwest of the country that is projected to cost some half a trillion dollars.

Such financial pressures and government measures to balance its accounts mean that easing the restrictions due to the coronavirus still might not lead to the desired economic revival, and Saudi citizens are likely to feel the pain of measures taken to alleviate the burden of the pandemic on the economy.

Yet, with oil prices still half what are needed for the Gulf countries to break even, the governments of the region might not be able to meet the expectations of their citizens, many of whom think that returning to normality means going back to the good old days of generous subsidies and handouts. 

As big companies plan a squeeze of their businesses to make up for losses due to the pandemic, tens if not hundreds of thousands of jobs will go. Even with measures to localise the labour market, Gulf citizens in some sectors might have difficulty keeping their jobs.

The public sector in the region will need to consolidate and restructure to meet efficiency targets. In Saudi Arabia, the majority of citizens work in the government or public sector and are paid more than their peers in the private sector by up to 60 per cent. This, too, is likely to change, as it will in almost all the other GCC countries.

The larger economies of the Gulf, meaning the Saudi and Emirati, might be in a better position to get through the pandemic relatively unscathed. But all the GCC countries will not be the same as they were before the coronavirus pandemic. A major economic shift has started in the region, and people will see more of it to come in the second phase of the pandemic.

Gulf citizens and aspiring expatriates from other countries in the region and beyond will need to brace themselves for a new Gulf after the pandemic.


*A version of this article appears in print in the 21 May, 2020 edition of Al-Ahram Weekly

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