Global economy is going through a very serious crisis that will impact all countries without exception, because of globalization meaning interdependence of economies is increasingly overwhelming notably through the rapid revolutionary advances in telecommunications.
It has widely been agreed that as explained by Dr A. Mebtoul in numerous of his contributions with respect to his native Algeria’s currently difficult conjecture. He recently held the view in MaghrebEmergent, a local online medium, that the basis of the current global crisis could be explained by the fact that supremacy of the speculative financial spheres over that of the real world has become ineluctably the dominant trend whereby speculative profits replaced that of real work as defined by the founders of Economics as being entrepreneur work as the basis of the wealth of Nations.
He, Dr A. Mebtoul goes on elaborating that no country would escape if no new supranational regulation mechanisms were to be put in place with the goal to rehabilitate the real sphere; a currency is only a tool at the service of the economy and not intended to dominate it. And this of course, within the context of a competitive global economy, with taking into account the global comparative advantages whilst linking economic effectiveness with a deep social justice. Economists talk about fairness.
He adds: we are at the dawn of a new transition of global society with geo-strategic upheaval that might entail painful social adjustments with new social regulations in order to avoid exclusion. The free-for-all mentality will be suicidal and will only bring harmful effects consequent to the 1929 crisis, with disastrous conflicts, etc. For this or rather to avoid this, politicians and economists must rehabilitate a strategic factor in development, i.e. morality.
There are inextricable links between sustainable development and morality; in fact it looks as if this is fundamentally the reward for the effort and a fight against corruption in its various forms.
It does invite us to meditate without being Utopian on the experiences of Islamic Finance which, according to Islamic Law, is based on two principles: prohibition of interest (Reba), and speculation (Gharar). Profitability of an investment with the results of an associated concrete project as an investment, ‘Mudaraba’ allows a developer to lead a project with funds advanced by contributors of capital with the key to distribution of gains and losses as set out in the contract.
According to data from international institutions including Goldman Sachs, Dresden Bank, ABN Amro, Barclays, Société Générale and Deutsche Bank, Islamic financial institutions in 2014 were dominated by banks (74%), issuers of “Sukuk”, equivalent of Islamic bonds (10%), investment funds (5%) and insurance companies, “Takaful” (1%). Countries industry leaders concentrated 78% of turnover in the world.
The weight of Islamic finance in these countries varies widely but if in Iran, Pakistan and Sudan, only Islamic finance is allowed, in other countries, this sector represents respectively the following market shares: Saudi Arabia: 53%, -Qatar: 24%, -Malaysia: 20%, -the UAE: 17%, -Indonesia: 4.6%, and -Turkey: 5%.
In relation to the above debatable global crisis and its repercussions on the MENA region, we would propose excerpts of this article as a background read.
January 11, 2017
MENA growth accelerates in 2016 despite GCC’s weak performance
Economic activity in the Middle East and North Africa (MENA) showed surprising resilience in 2016 despite mounting political and economic headwinds. According to our estimates, the region’s aggregate GDP expanded 2.7% in 2016, up from 2015’s 2.6% growth. Far from being a broad-based improvement, 2016’s figure was the result of diverging economic trends within MENA. The region greatly benefited from Iran’s reintegration into the global economy and its consequent surge in oil shipments. The Persian country is projected to expand at the fastest pace in six years in the Iranian fiscal year 2016, which ends in March 2017. Another positive note for 2016 was Iraq’s economic rebound following 2015’s dismal performance, when the Islamic State (ISIL) occupied large swaths of land in the country.
Accommodative monetary policies and improving external positions due to low oil prices prompted growth in most of the region’s net oil importers to accelerate this year. Morocco was the major outlier as poor weather conditions hit the all-important agricultural sector. Economic dynamics in Jordan and Lebanon were limited by spillovers stemming from the ongoing war in Iraq and Syria.
While the region managed to accelerate despite a challenging economic and political context, the Gulf Cooperation Council (GCC) countries felt the brunt of the pain in 2016. The low oil price environment since mid-2015 forced GCC countries to implement harsh austerity measures in order to rein in their soaring budget deficits. Lower subsidies and a sizeable reduction in government expenditures, particularly in infrastructures, took their toll on non-oil activities. As a result, growth in GCC countries fell from 3.8% in 2015 to 1.9% in 2016, the weakest performance since the global financial crisis in 2009.
In order to jumpstart their economies and replenish their crippled coffers, the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement on 30 November to cut oil production by around 1.4 million barrels per day. On 10 December, non-OPEC countries led by Russia joined the deal, committing to slash their output by around 550,000 barrels per day. Since then, oil prices have been trading above USD 50 per barrel for the first time in one and a half years. Despite the initial success, uncertainty lingers on the horizon as OPEC countries have a poor track record in sticking to oil production deals.
Global and regional headwinds plague this month’s 2017 growth prospects
Despite the OPEC’s deal to cut oil production, the region is facing severe headwinds this year. While the reduction in crude supply will boost crude prices, they will remain at relatively low levels. Moreover, the oil output cut that some key producers in the region have to implement in compliance with the OPEC’s accord will limit the gains of higher crude prices. Economic growth in MENA will be negatively affected by austerity as government budgets in a number of countries in the region are far from being balanced. Among non-oil-exporting countries, the rise in oil prices will lead to a deterioration in their external positions.
Widespread security risks in the region and global uncertainties, such as the yet unclear economic and geopolitical policies of President-elect Donald Trump and crucial elections in some countries in Europe, are also casting a dark shadow on the region’s outlook for this year. Against this backdrop, our panel of analysts decided to cut MENA’s 2017 economic outlook this month by 0.1 percentage points to 2.6%. Next year, the panel sees growth picking up to 3.2%.
This month’s cut to MENA’s growth forecast reflects downward revisions for 8 of the 16 economies in the region, including Egypt, Iraq, Qatar and Saudi Arabia. Conversely, the panel decided to upgrade its view on the economies of Iran, Lebanon and Tunisia. Meanwhile, analysts left the outlooks for Algeria, Bahrain, Israel, Morocco and the United Arab Emirates unchanged.
The best performer in 2017 is expected to be Iran as the country is benefiting from its reintegration into the global economy and stronger oil exports. At the other end of the spectrum, Saudi Arabia is expected to perform poorly, with an expansion rate of below 1.0%. Yemen, which is entangled in a bloody civil war, will remain the main blackspot in the region and the economy will contract for the fifth year in a row in 2017. Of the rest of the major economies in the region, Egypt and Qatar will likely grow the fastest, with projected expansions of 3.4%.