World Congress for Middle Eastern Studies

Barcelona, July 19th - 24th 2010


THE GLOBAL FINANCIAL CRISIS AND THE ARAB WORLD: IMPACT, CHALLENGES AND CHANCES - 2/2: The Global Financial Crisis and the Arab World: Impact, Challenges and Chances (234) - NOT_DEFINED activity_field_Panel

· NOT_DEFINED date: WED 21, 2.30-4.30 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: Maria Cristina Paciello (La Sapienza University, Rome), “The social impact of the current economic crisis in Morocco”
The current global financial and economic crisis is likely to affect Arab countries differently, depending upon economic structure, dependence on oil prices and linkages with other economies. How governments respond is also crucial to ensuring that the crisis does not lead to long-term consequences for vulnerable populations, including children and women. The purpose of this paper is to investigate the extent of the economic crisis in Morocco, by examining the social impact of the crisis and government responses to it. A gender analysis of the current economic crisis will be also undertaken in order to better understand the depth and the scope of the crisis in the country.
The first part of the paper looks at the different channels through which the crisis has been transmitted to Morocco. Exportation, foreign direct investment, remittances and tourism play a key role in economic growth and job creation in Morocco. Quantitative evidence is provided to show that, since 2008, Morocco has been experiencing rapid declines in worker remittances, foreign direct investments, exports and, to a lower extent, in international tourists.
The second section of the paper addresses the social and gender-specific impacts of the crisis, focusing on employment and poverty, although recent and reliable data are very scarce. Looking at the employment impact and using statistical data published by the Statistical Office of Morocco, the crisis appears to have disproportionately affected women, both in rural and urban areas, and particularly those working in textile clothing industry, as well as young (15-24 years). The paper also demonstrates that the current economic crisis is likely to have ended the period of declining poverty in Morocco, particularly as a result of dropping remittances, persistent high inflation and a narrow-focused policy approach to the crisis.
The third section of the paper critically discusses the main policy responses undertaken by Moroccan government to fight against the impact of the crisis. In January 2009, the government launched an Emergency Plan, including social, financial and commercial measures. However, the paper argues that the government’s response has been inappropriate as its coverage is narrow and, a large part of the population, particularly the most vulnerable, continues to be excluded by social protection mechanisms. The paper concludes with policy recommendations.

Paper presenter: Sabine Hofmann (Free University of Berlin), “Economic crisis and political conflict in Israel and the Palestinian Territories (PT)”
In the face of the world financial and economic crisis, no Israeli financial institution crashed, the property market did not collapse, there was no chaos at the Israeli stock market in Tel Aviv (TASE). The Bank of Israel declared the stage of recession for Israeli economy only in spring 2009. All in all, the Israeli economy was less affected by the financial crisis than other industrial countries, but the real economic effect had a greater significance for Israel, in the longer term. Unemployment increased, particularly in the high tech sector, export declined dramatically and the government budget deficit was close to five percent. In autumn 2009, the economy recovered slightly. For 2010, the IMF predicts GDP growth in Israel of about two percent. Nevertheless, the Israeli finance minister expects aftershocks from crisis in 2010.
In the Palestinian Authority Territory in the West Bank, economic growth was approximately eight percent in 2009. Unemployment in the West Bank dropped, sales to Israel increased, the stock market at the Palestine Security Exchange (PSE) has risen, foreign investments also increased. PA Prime Minister Fayyad remarked the economic growth was “very good”.
Summarizing the situation in both economies, the question arises whether the world economic crisis had a greater and longer lasting effect on the economy in Israel than in the PT: recession in Israel, recovery in the Palestinian Authority Territory? What are the basic facts behind these events?
The paper is an empirical analysis of the current economic situation in Israel and in the PT. It questions the differences in economic performances, political economic measurements and instruments of the administrations and business sector and the effects of the crisis on the real economy and the consequences for both societies. The presentation is based on statistical materials and ongoing research and field studies.

Paper presenter: Nadine Scharfenort (Centre for Research on the Arab World (CERAW)-Geographical Institute / Johannes Gutenberg-University Mainz), “Seeking for Opportunities: Bahrain’s Diversification Course and Reforms of the Labour Market”
The GCC-states were hit hard by the global bank and financial crisis due to their oil and gas resources which are among the world's largest deposits. This, however, does not hold true for all member states. The small archipelagic state Bahrain has already struggled before the crisis on a political and socioeconomic basis. Hit by the crisis more indirectly than directly, due to the strong ties with its oil-rich neighbours, it finds itself in need for further transformation today.
Although Bahrain’s oil reserves are expected to last less than 20 years from now, the country is still dependent on oil and gas (oil sector accounts for 65% of all exports or rather 70% of all revenues while it shares 11% of the GDP). Still, in comparison to its neighbours, Bahrain has a much more diversified economic base. Using its proximity to massive capital flows, Bahrain has built a powerful banking sector as well as a flourishing real estate market, and established another main economic pillar in tourism, supported by the country’s relatively liberal legislation.
Nevertheless, Bahrain’s ability to take advantage of the financial crisis seems to be fairly limited. It is constrained by socioeconomic factors, such as high unemployment among nationals, as well as political factors, like a somewhat strong opposition. Those factors will possibly limit Bahrain's capability to use the economic crisis as a stepping-stone towards a larger geopolitical role in the region.
This proposed paper will analyse Bahrain’s further diversification attempts at first and then explore the situation on the labour market which has recently undergone reformations. Dealing with these important issues and translating them into public policy, Bahrain takes a big and pioneering step forward within the region.

Paper presenter: Ida A. Mirzaie (The Ohio State University), “How Vulnerable Are MENA Countries to the Global Financial Crisis?: Analysis of Underlying Channels and Implications”
Many Middle Eastern countries – with the exception of a few oil-rich countries with small populations – are resource-constrained and therefore suffer from a structural current account deficit. There are two basic options to improve the current account balance. The first is to reduce consumption (especially government spending). The second is to expand supply by expanding domestic production capacities, which is, however, difficult given resource constraints.
Middle Eastern countries have tried two solutions for this problem. Some have sent large numbers of migrants abroad to send remittances back home. These remittances are recorded in the current account balance, reducing the deficit in light of a widening trade deficit. Others have made an attempt to attract foreign direct investment.
The purpose of this paper is to study the impact of the global financial crisis on the flow of remittances and FDI to a sample of countries in the Middle East. Countries that have taken steps to liberalize the capital and financial balance in recent years have resorted to ways to stimulate financial inflows. Some of these flows have taken the form of portfolio flows in financial investment. The sudden reversal of financial inflows, against the backdrop of a high level of outstanding external debt, has made these countries more vulnerable to the recent financial crisis. In contrast, flows in the form of FDI do not involve private or sovereign debt accumulation or a high risk of a sudden reversal in the face of global slowdown. FDI flows often involve long-term commitment in productive activity. Accordingly, they are desirable to supplement domestic resources, while contributing to real growth.
We begin by analyzing the significance of the different types of financial flows to Middle Eastern countries and their impact on GDP growth in the economies under investigation. We estimate empirical models that explain real output growth, price inflation, and the growth in real components of aggregate demand. The empirical models account for major policy variables: government spending, the money supply, and the exchange rate. In addition, we account for remittances of FDI flows in the empirical models. Using historical data, we analyze the extent of dependency of MENA countries on the various types of financial flows and the implications on their vulnerability in the form of direct or indirect exposure to the global financial crisis and the speed of recovery going forward. We draw policy implications regarding the desirability of financial flows and necessary regulations.