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French Version

Oil economies fear little rebound, make plans for long-term growth

If oil prices rise, boosting existing current-account surpluses and strong foreign reserves positions in most GCC states, there will be less urgency to push through plans to diversify away from oil and liberalize Gulf economies.

In line with economic forecasts by the Economist Intelligence Unit (EIU), we expect the new crisis will have mixed results on the oil-producing nations of the Gulf region. If oil prices rise, boosting existing current-account surpluses and strong foreign reserves positions in most GCC states, there will be less urgency to push through plans to diversify away from oil and liberalize Gulf economies. On the other hand, countries such as Dubai and Bahrain, which have pinned their hopes on becoming regional business hubs, are likely to encounter some disappointment as perceived volatility and risk deter international corporations from setting up shop there. People traffic between the Middle East and elsewhere will fall dramatically in the coming months and may continue to slide in the years ahead. Western governments are likely to reduce Middle Eastern immigration quotas and make the acquisition of entry visas of various types more difficult. The Middle East will decline in popularity as a tourist destination, harming the tourist industries of Egypt, Tunisia, Israel, Morocco, and Turkey, dashing the hopes of other countries in the Gulf, eastern Mediterranean and North Africa currently investing in their tourist infrastructure. There exists widespread speculation this period of military strikes in Afghanistan and beyond will be followed by a sustained period of co-ordinated law enforcement activity and covert action targeting urban cells of violence globally. Possible US ambitions to reach deep into Middle Eastern population centers to extract small networks of activists may require a measure of cooperation with host governments that presently harbor grievances against the US.

In different times, eased restrictions on commercial activity in Iran, Libya and Syria might lead to a marked influx of capital. But circumstances make this possibility less likely. Conservatives in Iran recently moved to block a watered-down law to make foreign investment easier. Libya is the least likely beneficiary of a political tit-for-tat with the US simply because it has less to offer logistically in the emerging war. Syria, although best poised to negotiate terms with the US, is least prepared to offer the legal, educational, communications, and economic infrastructure to attract foreign direct investment. Countries who are already aligned with the US, including Jordan, Egypt and Israel, will find new challenges to attract investors due to changing perceptions of risk and stability. Although most companies active in the region will remain in place, it is possible some companies contemplating entry into Arab markets may cancel or postpone their plans. Oil companies are expected to remain interested in the region, particularly newly opened markets in the Gulf, given the significant potential returns and long strategic view typically taken by industry players. The corporate culture of telecoms has some parallels with the energy sector, but the industry's global slowdown, coupled with security concerns in the Middle East, are a discouraging combination for potential new entrants to the region. One of the Middle East's principle exports has always been front-page news. Heightened global and regional interest in the latest developments in the region bode well for new and old media companies currently in place, particularly those generating unique content. Web sites and portals across the region report a dramatic increase in hits. Many ISPs (Internet Service Providers) are enjoying larger subscriber numbers and increased revenues. Security concerns stand to delay international media companies' ambitions to develop local corporate operations generating unique Arabic-language content, giving local media players the opportunity to further strengthen their hold on their markets. Consumer demand for telecommunications services will likely stay strong. However, it is expected that consumers will be more inclined to stick with basic mobile services at affordable prices and shun some newer applications and value-added services. Overall, present global uncertainty is not expected to substantially affect future subscriber growth in the major markets of the region.

Joseph Braude
The Star

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