home > by publication type > daily analysis > Growing Cities in the Arabian Desert
Email
| Author: | Lee Hudson Teslik |
|---|
A camel keeper waits for tourists on the beach as the Jumeirah Residence construction site looms in Dubai. (AP/Kamran Jebreili)
Saudi Arabia recently announced plans to build a tower one mile high (Times of London), more than twice the planned height of the Dubai Tower, which is still under construction but is already the world's tallest building. The Saudi proposal comes as part of an audacious series of projects aiming to overhaul the economic order on the Arabian Peninsula. The region contains three of the world's biggest oil producers in Saudi Arabia, the United Arab Emirates, and Kuwait. Qatar, Saudi Arabia, the U.A.E., and Oman also rank as important natural gas producers. All these states are undertaking steps to make their economies more flexible and sustainable, yet experts say the transition period comes laden with risk.
Growth in non-oil sectors is already well underway among the region's oil industry heavyweights. Factor out Saudi Arabia's oil revenues and you still find strong and accelerating growth. The trend holds across the peninsula. Non-oil sectors in the six states of the Gulf Cooperation Council (GCC), the regional trade bloc, averaged around 7 percent annual growth in the past half decade, more than double the growth rate of the U.S. economy during the same period. The spectacle of commercial expansion shines most brightly in Dubai, the U.A.E. trade hub and financial center. Saudi Arabia now seeks to duplicate Dubai's success. The country is in the process of constructing six new economic cities, which it says will contribute $150 billion to the country's GDP, increasing it by nearly 50 percent. Kuwait, Qatar, and other GCC states are also planning commercial expansion, though on a smaller scale.
Although this growth comes outside the oil industry, it would not be possible without oil revenues. The more than ten-fold increase in the price of crude over the past decade has left Gulf economies flush with cash. They invest some of this money abroad, through vehicles like sovereign wealth funds. The lion's share, however, is still held in reserves. A recent paper by CFR's Brad W. Setser says these reserves continue to rise despite an increase in outgoing investment and are enough to make the region a "new financial superpower."
The drive for domestic economic development comes from necessity, however. A briefing from McKinsey Quarterly notes that in some GCC states, including Saudi Arabia, population growth is outpacing oil production, suggesting standards of living will fall if Riyadh doesn't develop new means of employment. Concerns about labor market stability are exacerbated by the large number of migrant workers in the region. These workers are often granted short-term visas and are forced to leave once they finish a specific project—but analysts still wonder whether an economic blip might bring labor unrest (CNN). Youssef Ibrahim, a risk analyst and former correspondent for the New York Times, notes in an interview that only about 1.5 million of the U.A.E.'s 5.5 million people are citizens. The rest are migrant workers.
More broadly, countries like Saudi Arabia are keenly aware of the possibility that rising crude prices might boomerang and hurt them. The Economist notes that a run-up in oil prices in the 1970s in fact brought harm to Gulf nations by throwing the West into a period of stagflation and inducing a twenty-year slump in oil prices. An editorial in the Middle East Times notes that periodic price collapses aren't actually all that bad for Gulf economies, in that they wipe out competition in alternative energies. Yet experts say rising global energy demand, spurred by emerging China and India, mitigates the likelihood of another price dip on that level. Given this dynamic, the greater fear for GCC states may be the long-term limitations of oil supplies. PostGlobal notes Abu Dhabi is already funding solar energy development. Regional sovereign wealth funds have made notable investments in wind power as well, perhaps envisioning a future where oil, while still dominating global energy markets, must increasingly share the economic stage.
Weigh in on this issue by emailing CFR.org.
To order Task Force reports, Council Special Reports, and Critical Policy Choices, please call, fax, or order online from our distributor, the Brookings Institution Press: phone +1.800.537.5487, fax +1.410.516.6998.
For information on other reports that are not for sale, or for general publications information, please call +1.212.434.9516 or email publications@cfr.org.
Start-Up Nation addresses the trillion-dollar question: How is it that Israel—a country of 7.1 million, only sixty years old, surrounded by enemies— produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the UK? With the insights of geopolitical experts and investors, the authors examine this nation’s adversity-driven culture to answer this question and offer prescriptions for a global economy on the rebound.
In Forces of Fortune, Vali Nasr presents a paradigm-changing revelation that will transform the understanding of the Muslim world at large. He reveals that there is a vital but unseen rising force in the Islamic world—a new business-minded middle class—that is building a vibrant new Muslim world economy and that holds the key to winning the cold war against Iran and extremists.
In Cuba: What Everyone Needs to Know, Julia E. Sweig presents a remarkably accessible portrait of Cuba's unique place on the world stage over the past fifty years, including its internal politics, its often fraught relationship with the United States, and its shifting relationship with the global community.
Complete list of CFR Books
The report of this bipartisan Task Force of distinguished leaders and experts represents a strong consensus on the importance of repairing America's immigration policy. It makes the case that maintaining America's political and economic leadership depends on attracting talented and hard-working immigrants, and on securing the country's borders in a smart, effective, and humane way.
This report finds that nuclear weapons will remain a fundamental element of U.S. national security in the near term, and makes recommendations on how to ensure the safety, security, and reliability of the U.S. deterrent nuclear force, prevent nuclear terrorism, and strengthen the nuclear nonproliferation regime.
About Independent Task Forces at CFR
Complete list of Task Force reports
Identifying international threats and acting on them may be the most difficult job for U.S. policymakers. This report
provides an actionable road map for managing international threats before they erupt into crises and makes a strong case that preventive action is not a luxury but a necessity.
For more than a decade, the United States has mostly watched from the sidelines as Asian countries organize themselves into an alphabet soup of new multilateral groups. In this report, the authors review the relationship between pan-Asian and trans-Pacific institutions and suggest policy guidelines for a new U.S. approach to this new Asian landscape.
Complete list of Council Special Reports
To request permission to reprint or reuse CFR material, please fill out this permissions request form (PDF), referring to the instructions on page 1.
Copyright 2009 by the Council on Foreign Relations. All Rights Reserved.