January 24th, 2011
02:31 PM GMT
Riyadh: The home to the world’s largest oil reserves and the largest economy in the Middle East seems far removed from the populist youth revolt in Tunis, but government and business leaders in the region are keeping a watchful eye on the events in North Africa.
The fifth annual Global Competitiveness Forum in Riyadh, intentionally positioned just before Davos, is an excellent opportunity to take the pulse of the wealthier Gulf States and those who have an interest in seeing off the domino effect which has touched Algeria, Jordan, Egypt and Yemen.
The GCF is the “sand” component of what has built a reputation for being the “sand to snow” week, where about 100 participants go to both, including the chief executives from Rio Tinto, Alcoa and top cabinet members of the Kingdom.
While Saudi Arabia, Kuwait and the UAE have ample surpluses to dole out food and wage subsidies to calm nerves from the protests in the region, they are mindful that in an era of social media and rapid file sharing, they don’t want to take chances.
There are two keys issues at play in the Middle East - one which is a regional phenomenon, the other a global one. The Middle East continues to witness some of the fastest growth rates in the world, which can be a net positive (young workforce) if managed correctly, a monstrous challenge (high unemployment) if not. The latter at this stage is dominating the debate.
“The Tunisia case is a wake-up call for everybody,” says John Sfakianakis of Banque Saudi Fransi. While he is sceptical that these protests will reach into the Gulf, it is a warning to governments “to be able to adjust and to fix the structural problems that the region has - the biggest of all is unemployment.”
Even in Saudi Arabia, with all the fortune that 25 percent of the world’s oil reserves can offer, the jobless rate is just above 10 percent. In Tunisia it is 14 percent. The rule of thumb in this part of the world is that unemployment is double the rate amongst the region’s youth, which makes up two-thirds of the population.
The chief operating officer of Bahrain’s Economic Development Board, Kamal Ahmed, says that leaders of the region “should not wait to have a crisis in order to address the pressing issues. If we understand our challenges, our situation, we are able to put a plan to try and fix it.”
The second key challenge, the global one, has come back to haunt the region as the world economy has recovered from the depth of the banking crisis - the rising costs of basic foodstuffs.
In 2007, commodity prices hit record highs and governments here were busy scouring East Africa for arable land to enhance their food security. In this part of the world, households spend about a third of their take-home income on feeding their families. That is why the stubbornly high jobless rates coupled with, in some cases, double-digit price rises for food are leading people onto the streets demanding change.
“If you are unemployed, no income and the cost of goods and serves are going up, this scenario hits you very directly,” said Ahmed Fattouh, CEO of Globalist Capital Management. “We are at a tipping point.”
Jean-Marie Pen, chairman of consulting group Bain, is convinced that the wealthier Gulf countries use surplus funds to buy time. Saudi Arabia and Kuwait announced such moves at the Arab League Summit last week. But the poorer states will struggle.
Pen believes as leaders contemplate the global challenges in Davos, they need to think carefully about a global response to food supplies. As countries in the East rise, specifically India and China, so too will the need to address food, water and energy shortages near and long term.
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