Author: Josh Adler
This article mentions how the Arab countries are desperate for economic reform and that Arab countries have used government spending to quiet protests. Countries such as Saudi Arabia have increased spending by over 50% between 2008 and 2011. This level of spending cannot be sustained without an increase in revenues. The article explains the Arab dependence on oil exports. Rising oil prices has helped fund most of the government spending; however, most of the revenues from oil exports have gone to public-sector wages and consumer subsidies. These subsidies only benefit the rich and damage the economy by keeping loss-making firms alive. The IMF stated that the wealthiest fifth of Jordanians capture 40% of fuel-subsidy and the poorest fifth receive 7%. These subsidies further separate the classes. Arab companies are uncompetitive and account for less than 1% of non-fuel exports. According to The Economist, Turkey has five times the exports than Egypt. Therefore there is no excuse for such a lack in the global market. Arab nations need to come together to figure how to penetrate the global markets.
I agree with the article that the Arab nations need to find other exports to help strengthen their economies. The strong dependence on oil creates a volatile economy because the government revenues are dependent on the oil prices. A volatile economy creates a lack of citizen confidence in the government and could create protests and revolts. To further the tension, the Arab nations give subsidies to the wealthy businesses and therefore could create class warfare. This article is relevant because the U.S. economy is dependent on foreign oil and the Middle East has already seen governments destroyed such as Libya, Iraq, and Afghanistan. It is in the best interest of the U.S. and the Arab nations to increase exports in alternative goods such as durable goods and manufacturing. These nations have large cheap workforces, however, the volatile governments scare companies away. Nations and corporations will benefit if the governments are willing to allow outside corporations to do business and guarantee protection. Arab nations have already tapped one resource now they need to build a strong workforce to compete globally. Do you think the US needs to take action regarding the Arab nation’s dependency on oil?
Economist Article: http://www.economist.com/node/21548153