Think Positive

The global media in its coverage of the current turmoil in North Africa and the Middle East has dwelled extensively on the putative risks of contagion, thereby engendering expectations of the almost inevitable spread of the crisis across the region. Not only is such rhetoric simplistic – even the year of revolutions in 1989 eventually stopped – but it disregards many fundamental differences among the countries of the region which are by no means all “in the same boat.” In particular, the contagion speculation involves an important conundrum: why would the unrest spread into countries which even by international standards are prosperous and lack a significant history of political unrest? I speak, of course, of the GCC member states.

But what is even more disturbing about the media coverage of recent events is the extent to which media speculation has at times almost exclusively dominated the coverage of regional developments. In doing so, it has fueled sharp corrections in the regional capital markets with the Middle Eastern and North African bourses estimated to have lost some $140 billion in market capitalisation over the recent weeks of turmoil. By contrast, what has been less visible is a positive narrative, both at the level of individual countries and in the broader context of the GCC region. I say “in relative terms” because I do not wish to belittle the various positive steps that have been taken. But overall, the region would in my opinion benefit from a greater emphasis on the positive as a precondition for a more balanced discussion of its economic and social development needs.

Saudi Arabia’s Finance Minister Ibrahim al Assaf highlighted the power of positive intervention this week when he praised the sound fundamentals and resilience of the economy and suggested that the behavior of the regional stock markets had become fundamentally detached from the economic fundamentals. Traders took note and the market rebounded after a grueling week of record-breaking daily slides. After such an overreaction, the finance minister was without a doubt right to point out that the market now had genuine value opportunities further underpinned the country’s macroeconomic stability. One such intervention will doubtless not be enough to avoid a period of market volatility but it served as an important reminder that not all was doom and gloom.

There is no doubt that many of the grievances raised in the media are real. The regional governments have admitted as much and responded to them through various steps to address cost of living concerns, the unemployment situation, and shortages in housing. In that sense, they have followed a precedent set during the period of rapid inflation in 2007-2008. But it should not be forgotten that many of the most important policy responses long predate the crisis and are anchored in strategic policy-making. All the regional governments have for years been investing heavily in education and health care, as well as in efforts to upgrade and expand their infrastructure. At the same time, they have reviewed their regulations in order improve the business climate so as to fuel enterprise and investment. Not only will these efforts pave the way to greater and more widely shared prosperity but they also make the GCC region one of the most attractive places in the world in terms of its growth potential. This positive – indeed enviable – reality should be neither neglected or jeopardised.

But there is no doubt that the region, in its rush towards modernization, also needs to address the uneven pace of growth. Rapid economic change in any society always produces its relative winners and losers. Making growth more inclusive – in the favorite term of Indian policymakers – is a necessary consideration in the Gulf as well. It has always been part of government policy but ongoing review is needed to make sure that the solutions adopted still best serve the needs of the regional economies. Moreover, even as the region is able to increase temporary stimulus spending to address some of these concerns, it must carefully review government priorities and the efficiency of public sector spending so as to ensure its long-term sustainability. Many years have been spent on correcting the distortions caused by excessive job creation in the public sector in the 1980s and 1990s. Great care must be exercised to make sure that these mistakes are not repeated or replaced by other forms of welfare dependency. In that sense, better focusing social spending is increasingly presenting itself as a key consideration.

Another area were regional policymakers can proactively push the agenda in a more positive direction is GCC integration. Again, recent statements raise hopes that positive progress is underway. Just as the EU came to the rescue of its weaker member states, the GCC should seek to address points of stress and concern within the region while proceeding with its policy agenda that will ultimately result in greater job opportunities and economic growth for all concerned. Perhaps this time of crisis could also serve as the starting point for a regionwide debate about special purpose GCC funds for fostering economic development in the member states and as contingency mechanisms during times of trouble. A debate about a ‘European Monetary Fund’ is underway in the which, moreover, has a long history of activist regional policy designed to foster more even development.

Little can be done about the fact that investors overreact to uncertainty. But it is imperative to continue to counter the sensationalism of some commentators with sober reminders of the strengths of the regional economy. This is not a time to forget about the fact that the GCC is a success story in the making. But nor is it a time to let people take that for granted.

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