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MENA's cumulative surplus to hit $870b

Spurred by increased economic diversification in the non-oil sector and record fiscal and current account surpluses being posted by oil producers, the cumulative surplus of MENA region will reach more than $870 billion over 2003-07, Dr. Nasser Al Saidi, Chief Economist of Dubai International Financial Centre (DIFC), said.

Warning that the management and sound deployment of the region's new wealth would be a major challenge, he said structural and policy reforms are required to sustain growth. "In particular financial market development should be a main policy priority. The region needs to develop its bond and equity markets and integrate them."

Al Saidi said sukuk market can grow rapidly to help finance infrastructure projects and private sector investments. "The countries of the region also need to develop housing finance and mortgage markets. DIFC will aim to be at the centre of the efforts to develop sound and efficient financial markets to serve the economies of the region," he said at the second DIFC Forum where International Monetary Fund (IMF) and DIFC participants predicted a favourable outlook for the MENA region.

Goldman Sachs noted that with annual GDPs of $750 billion, the GCC states' economy alone is already comparable to Australia's. The IMF forecast that the Gulf oil-producing economies are expected to grow at a slightly slower pace with gross domestic product surging to $749.6 billion while recording a decline in surplus in 2007 as oil prices and output drop. With a new emphasis on diversifying economies, deregulation and skills and infrastructure development, the GCC states were among the best performers in its rankings for improving growth environments, Goldman Sachs said.

Goldman estimates that, on fairly conservative assumptions, the Gulf economy could be comparable in size and prosperity to that of present-day France by 2050 with huge demand for energy from China, India and other emerging markets countries potentially handing the Gulf a $5 trillion windfall over the next 25 years. On a "dream scenario" where the Middle East overcomes persistent obstacles to economic performance, Goldman argues that it is even possible for the region to eclipse the UK and Germany in economic weight during the first half of this century.

According to analysts, such rosy scenarios emphasise the great expectations that the Middle East could yet fulfil. Yet massive and daunting obstacles remain to be overcome. "There are two main, and closely-linked, sets of challenges and obstructions to progress. First, the Middle East remains blighted by political turmoil, regional conflicts both within and between countries and terrorism. Second, there are persistent doubts over the readiness and ability of the region's governments to pursue crucial economic reforms. Economies across the Middle East continue to be fettered by weak institutions, bloated public sectors that crowd out private sector dynamism and enterprise, corruption, and inflexible product, labour and capital markets that are hamstrung by self-serving official bureaucracies."

The World Economic Forum's recent report on the region's competitiveness has found that many key Arab states have begun to forge ahead with significant reforms to tackle these deep-rooted problems.

Yet the scale of the task facing the region is clear from the critical gauge of unemployment, which stood at 12.5 per cent in 2005. The World Bank estimates that 100 million new jobs are needed across the Middle East by 2020 to absorb its strong population growth and cut the jobless rate to sustainable levels. This is vital, not merely economically but for security: without such progress, a huge pool of young unemployed males will continue to provide a seedbed for instability and extremism.

The financial markets across the MENA region were also under scrutiny, with particular focus on money debt, equity and Sukuk markets and the recommendation that authorities should look at the development and integration of financial markets.

Analysts such as Edward Morse, of Lehman Brothers, argue that the Gulf states at least "could be on the verge of establishing a new economic order in the Middle East ? one that might withstand even an eventual, severe cyclical downturn in petroleum prices." That is a conclusion shared by the International Monetary Fund in its latest assessment of the region's fortunes, released this week.

Mohsin Kahn, the IMF's director for the Middle East and Central Asia, argues: "Even if the oil price falls, the private sector looks set to sustain some of the development."

"There is no question about the strength of the oil boom across the Middle East in the past five years. Last year the region enjoyed robust growth in GDP at a heady 6.5 per cent rate, far above the lacklustre 3.5 per cent average from 1990 to 2002, and the IMF forecasts a similar performance this year," adds one economist. (menafn.com)

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