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9-11 Impact on Middle East Economies

The UAE Minister of Economy, Her Excellency Sheikha Lubna Al Qasimi, has described the terrorist attacks of September 11th as a turning point for the economies of the Middle East.

Speaking to McKinsey Quarterly, the business journal of the global management-consulting firm McKinsey & Company, she said that anxiety about travelling, freezing assets, and the extra scrutiny of people entering the United States made a lot of Gulf businessmen more inclined to invest at home.

That change in attitude has meant that recent revenue surge created by high oil prices has been invested in the Middle East, unlike previous booms when the region's wealth has more commonly been invested in the West.

 


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"We are investing in ourselves by rebuilding our infrastructure so that we can create an environment for economic growth and attract outside investment," she told the journal.

Even when investing overseas, Middle Eastern businesspeople are focusing on developing nations close to home. UAE money, for example, is pouring into Qatar, Saudi Arabia and Oman. Beyond the GCC, projects are being funded in Egypt, Morocco, Jordan, and Pakistan, explained Sheikha Lubna.

Foreign direct investment (FDI) is also flooding into the Gulf. The UAE, alone, has seen FDI increase from just over $1 billion in 2002, to $12 billion in 2005.

And that investment is not just coming from the traditional superpowers of the United Stated and European Union. "It is coming from all over-the United States, Europe, and Asia-which is a good sign, as no one area is dominating," suggested Sheikha Lubna.

The UAE economy certainly benefits from foreign investment - growing 28% in 2005 - but it is even more dependent on foreign workers. A study by the Economist Intelligence Unit in 2003 found that only 1% of workers in the private sector were UAE nationals.

Sheikha Lubna has no objection to foreign workers in the UAE, but does not accept that UAE nationals should lose out as a result.

"Expatriate workers will obviously continue to play a vital role in our economy, but it is unacceptable that 22,000 nationals are either unemployed or underemployed. The private sector therefore cannot be left unregulated," she said.

However, she recognises that the UAE policy of Emiratisation - where certain types of jobs have quotas for the use of nationals - cannot succeed without improvements to education and training for the indigenous workforce.

There must be "adequate educational and training programs geared toward creating skills among nationals to suit the demands of the private sector," she asserted.

At heart, Sheikha Lubna is not an interventionist, and hopes that the private sector will recognise the benefit of hiring and training UAE nationals.

Those same instincts colour her thinking on trade. At present, the UAE, as part of the wider GCC, is in discussions for free trade agreements (FTAs) with several countries and economic blocs including China, Pakistan, Australia, Turkey, Japan, and Singapore.

The UAE is also negotiating on its own FTA with the United States - a process that Sheikha Lubna says enigmatically is "half way through."The negotiation is "complex," and is now "reaching the critical issues," she admitted.

Sheikha Lubna is optimistic about the future for the UAE and the wider Middle East, although she concedes that there may be challenges ahead.

Political stability and labour issues are key to ongoing growth and, while not taking either for granted in such a complex region, she notes that governments and businesses have become adept and thriving throughout the troubles of recent year.

 


 

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