How does the state and market affect economic development in the Middle East? Christina Ward,Maryam Tahir,Youssef Farkash, Amaal Jama, Sagal Bafo.

How does the state and market affect economic development in

the Middle East?

Christina Ward ,Maryam Tahir ,Youssef Farkash , Amaal Jama, Sagal Bafo

Definitions

• STATE: A nation or territory considered as an organized political community under one government . Geographical area within defined territorial boundaries and with a distinct set of political institution ,ruled by a government through laws.

• MARKET: An actual or nominal place where forces of demand and supply operate ,and where buyers and sellers interact directly or through intermediaries to trade goods, services, contracts, money or instruments.

• ECONOMIC DEVELOPMENT: Progress in an economy, or the qualitative measure of this. Economic development usually refers to the adoption of new technologies, transition from agriculture-based to industry-based economy, and general improvement in living standards.

Saudi Arabia

Saudi Arabia• Total population 2013 ( people) : 29,994,272• GDP (PPP) Total: $1.652 trillion (14th) , Per Capita $53,935

(10th)• GDP growth at constant prices 2013: 3.95%• Exports contribution to GDP for 2013 at current prices :

51.79%• Unemployment Rate 2014: 6%• Employment as percentage of population 2014 : 35.7%• HDI (2013): 0.836 (34th)

Saudi Arabia before oil • Before the 1930s, the region that would later come under the

control of the Saudi state was composed of several regions that lived off specific resources and differentiated human activities.

• The western province, the Hijaz, for example, depended chiefly on subsistence agriculture, some long-distance trade, and the provision of services to pilgrims traveling to the holy cities of Mecca and Medina.

• A plantation economy that grew dates and other cash crops dominated the Eastern Province. An extremely hostile environment determined geographical separation of peoples.

• The discovery of oil in the Eastern Province in 1938 came just six years after another major development: the establishment of the Kingdom of Saudi Arabia, which unified a number of diverse areas of the peninsula under one ruler.

Saudi Aramco

• Saudi Aramco is the Saudi Arabian national petroleum and natural gas company based in Dhahran, Saudi Arabia. Saudi Aramco's value has been estimated at up to US$10 trillion in the Financial Times, making it the world's most valuable company.

• Saudi Aramco has total assets estimated at US$30 trillion, which includes the company's natural gas and oil reserves.

• Saudi Aramco has both the world's largest proven crude oil reserves, at more than 260 billion barrels and largest daily oil production. Saudi Aramco operates the Ghawar Field, the world's largest onshore oil field, and the Safaniya Field, the world's largest offshore oil field.

Saudi Arabian Economy• Saudi Arabia's economy is petroleum-based; roughly 75% of budget

revenues and 90% of export earnings come from the oil industry. • The oil industry comprises about 45% of Saudi Arabia's nominal gross

domestic product, compared with 40% from the private sector • In the 1990s, Saudi Arabia experienced a significant contraction of oil

revenues combined with a high rate of population growth. Per capita income fell from a high of $11,700 at the height of the oil boom in 1981 to $6,300 in 1998.

Saudi Arabian Economy

• Challenges to Saudi economy include halting or reversing the decline in per capita income,- improving education to prepare youth for the

workforce and providing them with employment,- diversifying the economy, - stimulating the private sector and housing

construction- diminishing corruption and inequality.

Is Saudi to blame : Current fall in oil prices

• Until this summer, the global oil price had been relatively stable for almost four years, at about $110 (£68) a barrel.

• However, weaker demand coupled with surging US production has seen the price of the benchmark Brent crude oil price drop by 30% since June to around $83 a barrel

• Saudi Arabia, being the world's largest oil exporter and Opec's most influential member, could support global oil prices by cutting back its own production, but so far there is no sign of this.

• "They are happy to let prices slide a little bit further."

Iran

Overview

• Iran is the second largest OPEC producer and the fifth largest globally, and has the second largest gas reserves in the world after the Russian Federation.

• In 1908, Iran was the first country in the Persian Gulf to discover oil.

• The state-owned National Iranian Oil Company (NIOC) is responsible for all upstream oil and natural gas projects.

• But Iran’s oil sector has also suffered setbacks.

Nationalisation of Oil

• The Anglo-Iranian Oil Company was established in 1909 to exploit the Persian Gulf oil field, which had been discovered the year before.

• Mussadeq had been busily proclaiming that nationalisation of oil would abolish poverty in Iran at one stroke.

• The oil situation was not resolved until late in 1954, when agreement was reached with the oil companies, and the National Iranian Oil Company took over the industry

Comparison of GDP and Crude Oil Production

HDI• Iran’s HDI value – for the year 2012 – is 0.742. This

puts the country in the “high human development” category

• The first component of the HDI is “a long and health life”. UNDP measures this in terms of life expectancy at birth.

• The second component is “access to knowledge”. • The third component is “a decent standard of living”

Qatar

Qatar

• Qatar is a sovereign Arab country located in Western Asia, occupying the small Qatar Peninsula on the north-eastern coast of the Arabian Peninsula.

• Its sole land border is with Saudi Arabia to the south, with the rest of its territory surrounded by the Persian Gulf. Qatar's total population was 1.8 million; 278,000 Qatari citizens and 1.5 million emigrants.

• Although tiny, Qatar wields significant prestige due to its natural gas wealth and its sovereign wealth fund, which is one of the world's largest.

Background

• After the Ottoman rule, Qatar became a British colony in the early 20th century until the country gained its independence in 1971.

• Since the mid-19th century Qatar has been ruled by the Al Thani family. Qatar is an absolute monarchy, with one royal family having absolute power with hierarchy within that family, its head of state is Emir Tamim bin Hamad Al Thani.

• Qatar is an extremely conservative country, coming second to only Saudia Arabia in the Gulf peninsula, as most Qataris adhere to the strict Wahhabi interpretation of Islam. According to Qatar’s Constitution, Sharia law is the main source of Qatari legislation.

Wealth and Market Relation Towards Oil

• Qatar has the highest human development in the Arab world and is also the worlds richest country per capita; furthermore, the World Bank recognises Qatar as a high income country.

• Qatar sits on the world's third largest natural gas reserves and oil reserves in excess of 25 billion barrels. Petroleum is foundation of Qatar's economy and is responsible for more than 60% of the countries gross domestic product, roughly 85% of the countries overall export sales and 70 percent of total government income.

• The countries proved oil reserves of 15 billion barrels (588,000,000 m³) should ensure continued output at current levels for 23 years. Oil has provided Qatar with a per capita GDP that is ranked among the highest in the world.

• Qatar's proved reserves of natural gas exceed 7000 km³, more than 5% of the world total, third largest in the world.

• Production and export of natural gas are becoming increasingly important. Long-term goals feature the development of offshore petroleum and the diversification of the economy.

Qatar Petroleum• Qatar Petroleum (QP), a state-owned corporation

established in 1974, which is responsible for all phases of the oil and gas industry in Qatar. The state-owned Qatar Petroleum (QP) controls all aspects of Qatar's upstream and downstream oil and natural gas sectors.

• (IOCs) with the technology and expertise in integrated mega-projects, including ExxonMobil, Shell, and Total. The Qatargas

Qatar Petroleum • The Qatargas consortium includes QP, Total, ExxonMobil,

Mitsui, Marubeni, ConocoPhillips, and Shell, while RasGas is 70% owned by QP and 30% owned by ExxonMobil.

• In the oil sector QP owns and operates the main and largest onshorefields: Dukhan fand the offshore Maydan Mahzam and Bul Hanine Fields.

• International Oil Companies operate the remaining smaller offshore fields through production and sharing agreements (PSA).

• In order to increase production and reserves and export QP offered more favourable terms for PSAs in recent years.

Qatar • We learn that Qatar allows international oil companies to operate

because of there expertise and technology in order to increase revenue and reserves but only on specific fields and only through production and sharing agreements.

• We also learn that QP owns more than 50 percent of all oil companies operating within its borders, which is very tactical and safe.

• Qatar knows that it may be being exploited and for this reason is slowly shifting to joint venture agreements because they are more beneficial to the state.

• As a result of its oil and gas reserves and the way they deal with it Qatar has the highest income per capita not only in the middle east but world wide, also human development of Qatar is the highest in the middle east.

Oman

General statistics• Population:

– 3.1 million• GDP Purchasing Power Parity (PPP):

– $90.1 billion– 5.0% growth– 6.3% 5-year compound annual growth– $29,166 per capita

• Unemployment:– 15.0%

• Inflation (CPI):– 2.9%

• FDI Inflow:– $1.5 billion

Background of Oman pre and post Oil• Before oil Oman’s economy relied on limited agriculture and the export of

incense from Dhofar and relied heavily on British influence and power from 19th century onwards.

• Oman's location at the entrance to the Persian Gulf for centuries made it easy for trade, including a substantial traffic in arms and slaves. Its prosperity declined in the 19th century, when, as a result of Western dominance in Asia, traditional trade patterns and communications routes were radically changed. Oman's economy then became predominantly dependent on agriculture and fishing.

• Oil first discovered near Fahud in the western desert 1964• Petroleum Development Oman began production August 1967• Omani Government owns 60% of PDO. Foreign interests own 40% (Royal

Dutch Shell owns 34%, remaining 6% owned by Compagnie Françoise des Petroles (Total) and Partex)

• As the major exploration and production company in Oman, PDO currently produces more than 80% of Sultanate's oil.

Brief history of the Oil sector – Ministry of Oil and Gas.

• Sultanate of Oman granted 1st oil concession licence to Darcy exploration company (Anglo-Iranian oil company) in 1925.

• 1937 licence transferred to ‘Oman and Dhofar oil company Ltd).• 1952 it became the PDO.• 1955 and 1956 drilling began in south and north of Oman – Both wells were

dry.• Failures of no oil and worsening logistical problems and a surplus oil supply in

world market led to withdrawal of some oil companies as operators. Few shareholders such as Shell remained in Sultanate in search for oil.

• 1962 PDO achieved discovery of oil in Yibal field, followed by giant discoveries in Naith and Fahud fields in 1963 and 1964.

• These discoveries were the starting point and birth of an oil producing country.• By 2009 number of producing oil fields reached 135 fields with 21 concession

holders.

Statistics of GDP

State and market in relation to oil

The graph shows the years 1960-1966 and shows the extent to which finding oil impacted on the GDP of Oman pre oil finding and discoveries GDP was only 0.04 but in the space of 3 years it inclined to 0.06.

Statistics of GDP Looking at a 10 year impact of

the Oil industry on Oman shows the drastic control it took on the GDP and how Oman had never seen its GDP rise so drastically like it did in 1975.

By 1975 Oil accounted for almost all of Oman’s foreign currency exports. Development as consequence of oil income is remarkable with a tenfold increase in GDP from 1970-1979.

Oman’s oil cannot compete with likes of Saudi Arabia, output in 1979 was under 108 million barrels equal to 3% of Saudi production or 1/5 of Britain's North sea output.

Comparison of GDP in relation to Crude Oil Production

Economy of Oman

• Crude oil production in 2008 continued to increase by 6.4% to 315.6 million barrels in 2010 compared to a rise of 6.8% and 7.1% in 2008 and 2009.

• Volume terms, crude oil exports rose by 12.1% to 268.7 million barrels in 2010 compared to 10.6% rise in pervious year, primarily driven by rising global demand, mostly from emerging economies.

• Oman has no income tax, and there is no VAT on any consumer goods. Overall tax burden 2.2% of gross domestic income.

• Government expenditure equals 38% of GDP.• Oil and gas revenues constitute 84% of total revenue, have

helped keep public debt low at less than 10% of GDP.

Comparison of Trade freedom

Trade Freedom: Trade freedom is a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services. Different imports entering a country can, and often do, face different tariffs.

Comparison of Annual report 2010 and 2013/2014

Annual report 2010 Annual report 2013/2014

International developments World output grew 5% against 0.5% in 2009.

Emerging markets impressive real GDP growth 7.3% compared to 2.7% in 2009.

IMF states, global economy grew 3%, but 2012 grew 3.2%.

Emerging markets/developing markets was 4.7% but 2012 was 5%.

Economic Growth Sultanate’s GDP grew 23.4% in contrast to a decline of 22.6% in 2009.

Share of petroleum activities overall GDP increased 40.6% 2009 to 46.5% 2010.

Sultanate’s GDP grew 2.8% in 2013 compared to 11.5% in 2012.

Share of petroleum of GDP decline 1% = decline in crude oil prices.

Employment Employment opportunities created in public sector increased 3.9%.

Of total employment in public sector, employment of Omanis improved to 85.6% = Steady progress of Omanisation in Oman.

Government focusing on creating employment through increased investment in developing high labour intensive industries.

Promoting SMEs, expanding public sector. Improve skill levels through proper training

and exposure.

Oil and Gas Increase 6.4% to 315.6 million barrels compared to ruse of 7.1% in 2008 and 2009.

Omani crude oil got average price of $76.6 per barrel, 35.1% higher than 2009 per barrel.

Sultanate oil increased by 2.3% to 343.8 million barrels 2013.

Omani crude averaged $105.5 per barrel compared to $109.6 per barrel 2012.

Oman and its stance on the world.

• Largest producer oil and gas in ME that is not a member of OPEC.

• Oman's position is at a strategic position to the ME. If the flow of oil were stopped through the strait of Hormuz or enemy of west threatened to do this, the oil flow to the world would come to a halt. Oman has the access to the energy corridors.

Bahrain

Economic History of Bahrain• • •Bahrain gained it's independence from great Britain in 1971 and

quickly began consolidating power around the Al Khalifa family

• Bahrain pre-oil was an important island within the Gulf. Geographically well placed for trade with India, complete with a plentiful natural water supply,.

• Bahrain was the first Gulf state to discover Oil in June 1932. The discovery of oil is credited to one Major Frank Holmes first oil discovery in Bahrain is largely credited to one man, Major Frank Holmes.

State and Market in relation to Oil• Bahrain has a great reputation for creating the foundation towards

economic diversification, As a result of oil dependency in the country, the government has made a huge effort to transform the economy from being dependent on oil.

• The Bahraini government has developed many liberal economic policies due to it's urgency to diversity the economy away from it limited oil resources.

• The economic strategy used by the state is simply to integrate itself with the rest of world.

• However Bahrain’s oil and natural gas production and sales creates about 85 percent of the Bahraini government revenues. Oil is about 70 percent of government revenues and about 60 percent of export revenues.

• Oil dependency has caused Bahrain to become what scientist called 'Rentier state'. Oil has created a society more concerned about wealth than with democratic political participation.

Social Well-Being • Bahrain's rulers, and the majority of the government, military, and

business elites are Sunni. • Bahrain's sectarian divide therefore stems from economic disparity and

the denial of civil rights. • Poverty rate is increasing in Bahrain while at the same time average

income is increasing. This shows the large differences between classes of income and living standards.

• However Bahrain is one of the top-rankin• g Arab countries on the Human Development Index (HDI) compiled by the

United Nations Development Programme (UNDP). • The Bahraini government provides free healthcare and education to all

Bahraini nationals

Bahrain in the International World• In 2011 the World witnessed Bahrain's political unrest during the Arab

revolution • However Bahrain has a longstanding healthy bilateral relations with most

countries of the world and is key area of economic bilateral co-operation. • Also the country has maintained relatively good relations with the United

States politically and economically. Both countries have established a Free Trade Agreement to facilitate better commercial relations.

• Bahrain is a member of the Cooperation Council for the Arab States of the Gulf. They've highlighted the importance of cooperation between nations and peoples, in the context of commitment to the rules and principles of international legitimacy,

• Bahrain also calls for regional and global peace as a strategic objective

OPEC• Organization of the Petroleum Exporting Countries, headquartered in Vienna, Austria.• The purpose of OPEC for members is to "coordinate and unify the petroleum policies of

its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry."

• OPEC members collectively supply about 40% of the world's oil supply.• Together, OPEC members control about 75% of the world's total proven crude reserves.• OPEC member countries monitor the market and decide collectively to raise or lower

oil production in order to maintain stable prices and supply.• A unanimous vote is required on raising or lowering oil production.• Each member country controls the oil production of its country, but OPEC aims to

coordinate the production policies of member countries.• Oil and energy ministers from OPEC member countries usually meet twice a year in

March and September to determine OPEC's output level. They also meet in extraordinary sessions whenever required.

OPEC• Current Members: • Algeria - 1969-present • Angola - 2007-present • Ecuador - 1973-1992, 2007-present • Iran - 1960-present • Iraq - 1960-present • Kuwait - 1960-present • Libya - 1962-present • Nigeria - 1971-present • Qatar - 1961-present • Saudi Arabia - 1960-present • United Arab Emirates - 1967-present • Venezuela - 1960-present

Recap!!!

Conclusion

• In conclusion economic development within the middle east varies as some states exhibit rapid economic growth whereas others continue to deteriorate.

• Where some have highly diversified economies ,others draw their revenue primarily from one source .However the issue of oil remains the dominant theme in the regions economic development and stability .

Question time !!!