Ibrahim M. Oweiss, Professor of Economics at the Georgetown University School of Foreign Service in Qatar, gave a CIRS Monthly Dialogue lecture on the subject of “Current Economic Global Depression: Causes and Effects With Reference to the Gulf Economies.”

1. Monthly Dialogue Series:
Global Depression and Gulf
Economies
Ibrahim Oweiss
10 February 2009

2. Current Global Depression
• Causes
• Consequences
• Is any country immune from the current
depression? NO
• How about the Gulf countries in particular? Are
being affected in varying degrees
• How long? Well into 2012.
• Is it the end of capitalism?

3. CAUSES
• The war on Iraq
• Unwise fiscal policy during the Bush
Administration ..tax reduction at war times
• Lack of regulations
• Greed.. Fraud .. Misuse of Trust
• The Bernard Lawrence Madoff Affair
• Excessive bonuses to Wall Street Executives
• Mortgage problem
• The ballooning of the use of credit cards and
other instruments of borrowing

4. CONSEQUENCES IN THE USA
• Business failures of banks and other financial institutions. President
Obama does not rule out further failures
• Foreclosures
• Liquidity crunch
• Unemployment, currently at 7.6% or 3.6 million unemployed
• Increase in public debt. It reached $10.7 Trillion! on Feb 6, 2009
• Huge Budget Deficit .. $1.2 trillion in February 2009
• Increase in interest payments: In Fiscal Year 2008, the U. S.
Government spent $412 Billion on interest payments to the holders
of National Debt almost 7 times what had been spent on Education
• In general world industrial machinery is slowing down, curtailing
production and marketing of goods including cars.

5. CAN THE BAILOUT WORK?
 The world economy is bound to have the slowest growth since WWII
according to revised projections of the International Monetary Fund
• The crack in the US economy is too wide and too deep to be filled
with proposed rescue plans
 The Gross Domestic Product in the USA showed a decline of 3.8% in
the fourth quarter of 2008, largest drop since 1982. I expect that
the first quarter of 2009 will show even more drop, probably as
much as - 4.5%.
• In spite of the bailout, still credit is difficult to attain
• Lending institutions are adopting an over cautious strategy leading
to partial paralysis in economic activities
• Hence current depression is unavoidable, BUT recovery could be
shortened by the bailout

6. HOW ABOUT THE GCC?
• Petrodollars are declining because world
industrial machinery is slowing down
• Hence less demand for oil
• Prices of oil lost more than $100 a barrel in the
course of few months.
• Prices of oil is expected to decline further
probably less than $30 a barrel
• The Oweiss Demand Curve may offer an
explanation

7. ECONOMIC EFFECTS ON THE GCC
 Lower oil prices, the global recession, tighter liquidity,
job cuts and the absence of speculators have all put
pressure forcing developers to review project
requirements.
 Drop in the rate of inflation
 GCC labor market is bound to be reduced.
 In view of credit crunch the drop and real rents, real
estate market had actually slowed down.
 Psychological effects as reflected in the GCC stock
markets. Arab investors follow closely and are affected
by the fluctuations of major stock markets.

8. THE UAE
 The United Arab Emirates is delaying or canceling real-estate
projects worth more than $260 billion amid falling demand and
deteriorating market conditions, according to a new report by
Morgan Stanley
 In the fourth quarter of 2008, property prices were corrected
sharply downwards, rental rates eased in Dubai and there was an
increase in the rate of announced projects delays/cancellations
 At the end of 2008, approximately $1.25 trillion worth of
construction projects were underway in the U.A.E. However, as the
region's once-booming real estate market slumps amid falling prices
and a growing number of layoffs in the construction and financial
sector, some of the Emirates' leading developers are being forced to
review project requirements.
 Property prices in Dubai have fallen by almost one third since the
peak of early 2007. It was announced last week that Dubai is
canceling almost 60 projects. Dubai's Palm Jumeirah Prices
Plummet 50%

9. GCC SOVEREIGN FUNDS AND OTHER
EFFECTS
• According to Deutsche Bank, losses of Arab Sovereign
Funds may reach $450 billion = to all petrodollar
revenues for the year 2008 of which $b155 UAE losses,
Kuwait $100, Qatar half of its $b30 in portfolios of
stocks and bonds in real estate in the UK
• I think such estimates do not hold water as they
represent losses on paper. GCC Sovereign funds should
not be liquidated. Otherwise the losses may not be
recoverable.
• Psychological effects of Arab investors contributed to
losses in Arab stock markets as they eye what is
happening in major stock markets in New York and
others

10. OPTIMISTIC CASES
• In spite of what seems to be the worst year
economically, yet Qatar may be able to have a
reasonable rate of growth in 2009, probably
around 6-7% because of the immense
expenditures on natural gas and other projects.
• Qatar has financial reserves that are of great
help in lean years
• Saudi Arabia is embarking on a rail-road
immense project

11. IS IT THE END OF CAPITALISM?
• Following the collapse of the financial institutions in
2008, President Nicolas Sarkozy of France announced “it
is the end of capitalism”
• Capitalism is the economic system allowing private
citizens to own capital and to benefit from it.
• Hence, there is a broad range from what Arnold Toynbee
called “unbridled individualism” to a controlled one by
the government for the overall benefit of the society.
• What is going to emerge as what had happened in the
1930’s following the great depression, government
controls will have to emerge to put capitalism under an
oxygen tent so that it can survive.

12. SAFE INVESTMENTS
• Let me conclude that in spite of the bleak economic
conditions, I may suggest some safe investments
• Gold
• A forgotten British currency - fully backed by gold and
the govt. - could soon double in value versus the dollar.
In fact, this ultra-safe money will be the hottest currency
of the next 18 months.
• Shares in drug companies just about to win an FDA
approval for new drugs.
• Shares in high-tech industries
• Real estate of properties that had faced substantial drops
in their market value.