Economic Co-Operation in the Arab Gulf: Issues in the Economies of the Arab Gulf Co-Operation Council States (Routledge Studies in Middle Eastern Economies)

169 Pages·2007·1.11 MB·English

by  Badr Ibrahim

Economic Co-operation in
the Arab Gulf
This book examines the major issues facing the economies of the Arab Gulf
today, covering all six of the Arab Gulf Co-operation Council (AGCC) states:
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
These countries enjoy global economic significance on account of their huge oil
reserves, and are likely to remain at the forefront of the global economic agenda
for many years to come. This book analyses the critical questions facing these
economies today, outlines the key trends and likely prospects for the future, and
goes on to formulate policy recommendations. Important topics covered include
the AGCC monetary union, intra-AGCC national labour movement, Islamic
banking and programmes to finance small and medium enterprises (SMEs). It
examines the costs and benefits of the proposed monetary union, assessing
whether AGCC economic structures have sufficiently converged and whether
these economies have the internal flexibility necessary to make the union
work effectively. It investigates intra-national labour mobility in the context
of the forthcoming monetary union and identifies the most crucial features in a
successful common AGCC employment strategy. It considers the fortunes of the
prominent Islamic banks in the region, and examines the impact on liquidity of
financial and regulatory policy. Finally, it contrasts and compares some of the
major SME financing schemes, focusing in particular on SME financing in
Oman. Overall, this book provides a detailed account of the central features of the
economies of the Arab Gulf, drawing out the critical trends that will shape the
region in future years.
Badr El Din A.Ibrahim currently serves as an Economic Expert at the Ministry
of Finance, Oman. He was previously Assistant Professor and Head of the
Department of Economics at Khartoum University, and thereafter Professor of
Economics at the Modern College of Business and Science, Oman. He has written
on SMEs, Islamic banking, adjustment programmes, and AGCC economies. He
is the author of Banking and Finance to Small and Micro-enterprises in Sudan –
Somelessons from the Islamic financing system(Institute of Islamic Banking and
Insurance, London, 2004).
Routledge studies in Middle Eastern economies
The Egyptian Economy
Performance policies and issues
Khalid Ikram
Economic Co-operation in the Arab Gulf
Issues in the economies of the Arab Gulf Co-operation Council states
Badr El Din A. Ibrahim
Economic Co-operation
in the Arab Gulf
Issues in the economies of the Arab Gulf
Co-operation Council states
Badr El Din A. Ibrahim
First published 2007
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
270 Madison Ave, New York, NY 10016
Routledge is an imprint of the Taylor & Francis Group,
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This edition published in the Taylor & Francis e-Library, 2007.
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© 2007 Badr El Din A. Ibrahim
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic,
mechanical, or other means, now known or hereafter
invented, including photocopying and recording, or in any
information storage or retrieval system, without permission in
writing from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available
from the British Library
Library of Congress Cataloging in Publication Data
Badr el din, A. Ibrahim.
Economic co-operation in the Arab Gulf : issues in the economies of
the Arab Gulf co-operation council states / Badr el din A. Ibrahim.
p.cm. – (Routledge studies in Middle Eastern economies)
Includes bibliographical references and index.
1. Persian Gulf States–Economic policy. 2. Gulf Cooperation
Council. I. Title.
HC415.3.B33 2007
337.1'536–dc22 2006035311
ISBN 0-203-96179-X Master e-book ISBN
ISBN10: 0–415–42883–1 (hbk)
ISBN10: 0–203–96179–X (ebk)
ISBN13: 978–0–415–42883–5 (hbk)
ISBN13: 978–0–203–96179–7 (ebk)
Contents
List of tables vii
Foreword ix
Acknowledgements xi
List of abbreviations xiii
Introduction 1
1 The AGCC Monetary Union 7
2 Intra-AGCC national labour mobility 33
3 Some aspects of liquidity of Islamic banks in
two AGCC states 59
4 Financing small and medium-sized enterprises in the
AGCC states: the case of Oman 91
5 Conclusion 135
Notes 139
Bibliography 142
Index 149

Tables
1.1 GDP by economic activities 16
1.2 AGCC: expenditure components of GDP, 2003 16
1.3 AGCC endowments and economic size 17
1.4 Trade openness, trade integration and geographical
breakdown of trade accounts 19
1.5 Testing for procyclicality in AGCC countries 24
2.1 Growth account in AGCC states, 1980–1990 and 1980–2000 41
2.2 Employment elasticity of output growth in AGCC states,
2000–2001, and other estimates of employment elasticity 42
2.3 AGCC average annual growth rates of labour force and
population 43
2.4 Employment indicators in AGCC states and other groups of
countries 46
2.5 Omani labour force in Qatar – major characteristics 54
3.1 Islamic and conventional types of deposits 61
3.2 Financial statements of ISBs and CBs 62
3.3 Macroeconomic indicators – UAE, 1998–2002 72
3.4 Macroeconomic performance – Qatar, 1998–2002 73
3.5 Banking performance – UAE, 1998–2002 75
3.6 Banking performance – Qatar, 1998–2002 76
3.7 Cash to current liabilities 82
3.8 Cash to customer deposits 82
3.9 Current assets to current liabilities 84
3.10 Leverage ratio 84
3.11 Customer deposits to current assets 86
3.12 Current assets to total assets 86
3.13 Net profit to customer deposits 86
4.1 General characteristics of SME financing programmes 104
4.2 Definition, types and target groups 107
4.3 Methods and amount of finance 110
4.4 Interest rates, charges, exemptions, grace and repayment periods 112
4.5 Conditions and guarantees 114
4.6 Objectives and priorities of finance 117
4.7 Indicators of success, obstacles and future vision 119

Foreword
The issue of economic integration in the Arab Gulf Co-operation Council
(AGCC) states has been much written about in the media and debated both in
the region and internationally. However, there is little academic or professional
literature on the subject and much of the popular debate has been at a rather
general level. Dr Badr El Din Ibrahim’s study aims to rectify this situation, as it
provides a detailed evaluation of the challenges facing AGCC policy makers
asthey attempt to integrate their economies to create a regional economic power
that has a more significant market and resource base than any of the individual
countries participating.
The focus appropriately is on AGCC monetary union, which could bring
substantial benefits to the six countries through its positive impact on investment,
the development of financial services and employment. However, as Badr El Din
Ibrahim points out there are constraints given the limited degree of convergence
in both structural and cyclical terms, as well as the inflexibilities in labour and
capital markets and the rigidity of fiscal policy. Labour issues are investigated in
detail, notably the extent of market segmentation, the dependency on migrant
contract workers in all six economies and the paradoxical unemployment faced by
some local nationals that policy makers have struggled to address. Strengths of
the work include how hypotheses are properly formulated and objectively tested,
with the findings clearly presented.
Two particular issues are explored in considerable detail, the liquidity of
Islamic banks in the UAE and Qatar and the finance of small and medium-sized
enterprises (SMEs) in Oman. At first sight these would appear disconnected from
the issue of AGCC economic integration, yet they are actually intertwined, as
Badr El Din Ibrahim demonstrates.
The AGCC has become the major global centre for Islamic banking, and there
has been much discourse between Islamic bankers through conferences and
other gatherings. Common regulatory rules are evolving thanks to the efforts of
the Islamic Financial Services Board and co-operation amongst central banks in the
region. In addition there is widespread respect for and adherence to the standards
on financial reporting developed by the Bahrain-based Accounting and Auditing
Organization for Islamic Financial Institutions. Shariah-compliant financial products
have become standardized across the AGCC, with cross-border demonstration