Is GCC vulnerable to unrest…answer is no

Fears have amounted that the current uprising in Egypt and a popular revolution in Tunisia last week could spill over into other Arab countries. But will they reach Gulf oil producer? According to a Saudi study, the answer is no.NCB Capital (NCBC), a leading investment cokmpany in the Gulf Kingdom, believes the massive wealth of the six-nation Gulf Cooperation Council (GCC) makes them almost immune to such a spillover.]

Besides, the nature of their regimes-- all are monarchies-- enable them to maintain control on the army and other vital institutions in their countries.

“The GCC economies especially, we believe, are being seen in the same light as their North African counterparts. We highlight that apart from being in the same general region globally, there are significant differences which support far more stable economies and political systems across the GCC,” said NCBC, an offshoot of Saudi Arabia’s largest bank, National Commercial Bank.

“One simple differentiating factor for the GCC versus other countries in the  Middle East is the fact that the hydrocarbon rich GCC is simply wealthier than most of the other countries in the region. …the benefits of oil along with generally smaller populations (apart from Saudi Arabia) lead to globally high GDP/capita figures ranging from $23,000 to $88,000.”

The study said such high per capita compares to that in Egypt and Tunisia at around $6,0006 and $9,000 respectively and other countries in the region in similar or even lower territory.

It noted that GCC nations, which control over 40 per cent of the world’s proven oil deposits, are using their hydrocarbon wealth to modernize and diversify their economies through large scale investment programs, which ultimately lead to better economic opportunities for their citizens.

Saudi Arabia, for example, announced its 9th Five Year Plan in August 2010, where it will increase spending 67 per cent to $385 billion over the period, focusing on social development and health care, economic resource development, and transport and telecommunications, NCBC said.

“Given that one of the factors leading to the protests against the governments in Tunisia and Egypt was due to the lack of domestic economic opportunities for much of the lower and middle classes, we believe that such drivers are far less critical in the GCC countries,” it said.

“Politically, the GCC countries are essentially Monarchies with varying degrees of  democratization.

The rulers have close ties to the defense, military, police and other security forces. This sets them apart from many of the other countries in
the region where the absolute loyalties of the security forces may not be Assured….while the debate on political structures in the region is a long and complex one, the ability of the leaders of the GCC countries to provide for their citizens has to a large extent overcome calls for large scale reforms.”

The study said the GCC economies, which account for nearly half the total Arab economy, generally provide for their citizens to a much larger extent than neighboring countries.

For example, for citizens, free education, free hospital/medical care, basic housing, and even government supported jobs are commonplace, it said.

“There is no doubt that substantial risks exist and are rising in the Middle East and globally. Rising political tensions in multiple countries in the Middle East,

persistent and growing inflation – especially food inflation, and oil prices on the verge of breaking through the USD100/bbl level are all significant issues which investors should incorporate into their views on the markets,” it said.

“In the short-term, concerns of violence in Egypt potentially disrupting the Suez canal is resulting in rising commodity prices, especially oil, and has dented investor confidence with global indices falling over the past few days.

With Egypt being the current center of attention, the issue for the rest of the Middle East is that most foreign investors seem not to be differentiating between the various countries….as we have highlighted, we believe the GCC, and especially Saudi Arabia should be considered in a different light from the disruptions in North Africa and some of the other countries in the region.

The economic strength and political stability of the country put it in a different league, which we believe investors are not taking into account.”

 

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