World Congress for Middle Eastern Studies

Barcelona, July 19th - 24th 2010


THE GLOBAL FINANCIAL CRISIS AND THE ARAB WORLD: IMPACT, CHALLENGES AND CHANCES - 1/2: The Global Financial Crisis and the Arab World: Impact, Challenges and Chances (197) - NOT_DEFINED activity_field_Panel

· NOT_DEFINED date: WED 21, 11.30 am-1.30 pm

· NOT_DEFINED institution: German Development Institute, Bonn / University of Kopenhagen and GIGA Institute of Middle East Studies, Hamburg (Germany)

· NOT_DEFINED organizer: Markus Loewe & Juliane Brach

· NOT_DEFINED language: English

· NOT_DEFINED description: The global financial crisis has not spared the Arab world. It has manifold effects on the economic development of that part of the world. Many of these effects will have a negative impact even on the long run adding to the well-known structural problems under which the Arab countries already suffer today. The WOCMES panels 1 and 2 on “The Global Financial Crisis and the Arab World: Impact, Challenges and Chances” are meant to bring together and discuss empirical evidence on the significance of the different effects of the crisis as well as to discuss what the Arab states can and should do to cope with them.

Chair: Markus Loewe (German Development Institute)

Discussant: Juliane Brach (University of Kopenhagen)

Paper presenter: Nidal Rashid Sabri (Birzeit University), “Stability of Arab Stock Markets”
Stocks markets worldwide (including developed and emerging economies) are witnessing a changing environment that has led to the introduction of new practices. For example, there is an increasing number of linkages between stock markets, an increase in the share of foreign ownership, an increase in the share of cross border stock trading transactions etc. (Sabri, 2007). The majority of these new practices is also introduced gradually to Arab stock markets. As a result, the market capitalization of the Arab stock markets increased six times between 2001 and 2006, and their traded value jumped up as well.
However, such changes and developments bring also about risks. For example, they may transfer the volatility of inflation and exchange rate from one market to another as happened to the financial markets in Mexico during 1994 and East Asian region during the years 1997-1998. Accordingly, this presentation aims to discuss this issue. It starts out to present the newly adopted practices in the Arab stock trading, as well as the new introduced related laws and regulations. Then, it points out the major aspects of globalization in Arab financial markets. After that it tries to identify the possible causes of the high volatility in the Arab stock markets, which may lead to another financial crisis. Finally, it proposes ways and means to reducing stock price volatilities considering the behaviour of the financial markets in the last decade.
The presentation will consider the latest published financial data for 15 Arab stock markets using the AMF database. In addition, it will cover all newly introduced practices and financial instruments to the Arab financial markets, as well as all recent legal, trading and other related environments incorporated in the Arab stock markets, and their impact on Arab stock prices volatility, which may end as a stock crisis.

Paper presenter: Rahel Schomaker (German Research Institute for Public Administration, Speyer/ German University of Administrative Sciences, Speyer), “Economic and Political Impacts of the Financial Crisis on the United Arab Emirates”
The current financial crisis affects the countries in the MENA region as well as other emerging markets, with some countries being affected heavier than other. While for a long time it seemed as if the United Arab Emirates (UAE) being some of the latter ones, in December 2009 even the UAE got into trouble when some state-owned enterprises in Dubai announced that they need postponement of payment. Since then, Dubai has been rated down by the rating agency Moody’s, expatriates from Europe and other countries are leaving and it seems as if the building boom is over for now. While increasing oil prices help Abu Dhabi to get over the crisis, bad news from Dubai affect the United Arab Emirates as a whole and, over the economic impact itself, even influence the political balance of the Emirates.
Our proposed paper is organized as follows: First, we provide an overview over the performance of the United Arab Emirates within the last decade, which was coined by continuous growth and a deeper integration of the UAE in world trade. In the second section, we examine the different transmission channels of the financial crisis and analyze the effects of the crisis in the UAE. Transmission channels as well as the effects itself differ between the states of the UAE due to their heterogeneity and especially the different dependency of oil prices: while Abu Dhabi is strongly affected by decreases in oil prices, Dubai on the other hand depends on real estate markets, air transport and tourism. In addition to the economic effects of financial crisis we provide an analysis of the more political consequences of the crisis on the UAE federal structure. Our thesis is that the current crisis, especially the financial difficulties of Dubai’s state-owned enterprises, led to an imbalance between the two leading Emirates of the federation. A short conclusion completes our paper.

Paper presenter: Eckart Woertz (Gulf Research Center, Dubai, and Princeton University), “Bye Bye Dubai: The UAE and the Global Financial Crisis”
The global financial crisis has hit the GCC countries in three major ways: Decline of overseas assets, increased costs of domestic funding and price corrections in major export items such as oil and petrochemicals. Oil-poor Dubai’s situation is particular, as its debt financed diversification drive has been seriously put into question by the standstill request of two government owned companies, Dubai World and its subsidiary Nakheel. Before, markets had assumed an implicit government guarantee for such companies; now that such guarantee has not materialized and Abu Dhabi has so far failed to show up for the rescue in these two cases, refinancing on international markets will be more expensive or impossible. Matching increased costs of capital with growing economic activity will be challenging in the prevailing global environment. Therefore, reliance on Abu Dhabi in the ongoing restructuring process will increase and will come with trade-offs. A possible outcome will be greater centralization of the UAE and a recalibration of Dubai’s development strategy. While the real estate sector is still troubled and has failed to deliver on its lofty promises, Dubai has reached critical mass as a regional trading hub and can build on this strength.

Paper presenter: Amer Ghrawi/ Katja Grunow (University of Potsdam/ InWEnt, Berlin), “The Impact of the Global Financial Crisis on the Economic Reform Agendas in Syria and Egypt”
The global financial crisis has fuelled a debate in the MENA countries on the economic reform agendas (ERAs) and the market economy in general. One side argues that the GFC has demonstrated the failure of the market economy and that government in Syria and Egypt should adjust or even abolish their ERAs. Others argue that a market system can function and that governments should increase the velocity of ERAs but that the GFC underlines the need of a prudent system of rules and regulations controlled by strong supervisory institutions.
Egypt and Syria were chosen due to a couple of decisive commonalities. Among others, their prospects for development have been negatively affected by the crisis, but not as seriously as other world regions for different reasons. On the other hand, both countries might benefit from a lower rate of global inflation, declining interest rates and commodity prices.
In the short term, both governments announced a set of procedures to counter the impact of the GFC, and to adhere to the ERAs. The fact that a crisis includes both challenges and opportunities at the same time was considered in the two countries: In Syria, the State Planning Commission (SPC) issued a statement calling for enhancing the ERA in the face of the GFC. In Egypt, the Government has taken action to enhance the predictability of financial crises and to implement precautionary measures.
The paper will discuss in what areas the GFC increased ERA velocity, in what way the GFC changed ERA priorities and where the GFC slowed down or even hindered the ERAs. Eight variables were identified to influence the chosen countries. The first part of the paper will measure the real impact of the GFC on the ERAs in the case study countries. Based on these results, the paper will draw three scenarios of government policies as a reaction to the GFC: the recommended optimum policy, an example of actual implemented policy, and no reaction policy. The three scenarios will be used as an analytical tool that allows for evaluating government's efficiency (willingness and ability to act) in their performance in facing the crisis and using the crisis for spurring and implementing the ERAs.