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Developing Countries in Middle East

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The Middle East is made of nations of the Western Asia and Egypt. Many nations in the Middle East have a fairly stable economy. Also, most of the countries in this region depend on oil as the driver of the economy. However, most of the countries also practice agriculture as a source of food for both subsistence and commercial purposes. Those countries that are endowed with mineral deposits, they exploit them. The minerals contribute to the list of the country’s major exports and the subsequent foreign exchange. Most of these countries have experienced numerous setbacks from the political perspective. Due to political instabilities and uncertainties, investment has not been favored. Consequently, private investors as well as the foreign investors get discouraged for fear of the risks that they perceive under such circumstances.

Legal framework also has a significant impact on the economic growth of any country. Many countries in the Middle East have a stagnant economy due to ineffective laws and regulations to protect the rights of the local and international investors. The Judiciary system in most of these countries has proven ineffective in fighting corruption. Therefore, weaknesses in the politics and legal system have hampered growth in the economy of most of the nations in this region. In this paper, five countries have been selected to be discussed in details to show the level of economic development in the region. These countries are Turkey, Iran, Egypt, Saudi Arabia and Syria. Their level of economic development is the reflection of the general development in the entire region. The fact that these countries are categorized as developing nations has been emphasized.

Turkey

           Turkey thrives in terms of economic development. Its economic backbone is exports from industries and foreign investments. Its major exports are foodstuffs, clothing, textiles, iron and steel. It also exports cars, vehicle parts, delivery trucks and refined petroleum. Turkey is ranked fifth in the export market as a member of the European Union. In addition, the nation is ranked as the top exporter of cement, wheat flours, marble, hand-woven rugs, dried fruits, pickled foods, travertine and alabaster. Moreover, it exports cotton waste and retail artificial staple fibers yarn. Its exports are mainly to the European Union (EU), Iraq, Iran, Russia, USA and United Arab Emirates. Turkey’s exports to the EU market are mainly transport equipment and machinery. Also processed foods are in the top list of exports to the EU. In addition, it exports chemical products. According to Turkish Statistical Institute (2014), export industry in Turkey has grown tremendously. Turkey is ranked as one of the leading shipbuilding nations.

Foreign direct investment (FDI) in Turkey has a very significant position in the world economy. That is because Turkey has defined itself as a hub for foreign investments. In fact, Turkey is argued to be at the same level as the BRIC nations. Even in the midst of global FDI showdown, Turkey remained stable during the year 2011 and 2012. The global FDI inflows decline was due to high volatility in the financial markets, the fiscal gap in the US, macroeconomic uncertainties and the euro crisis. During this period, Turkey is estimated to have expanded its market share with around 12.5 billion US dollars. The construction industry contributes immensely into the economic growth. In Turkey, FDI is involved with manufacturing industry and real estate purchases. The highest demand for FDI is in the fields of energy, chemicals, financial services, infrastructure, environmental technologies, tourism and machinery. FDI can be done in two ways; by establishing a company or a liaison for a foreign company and by buying shares in an already established company. Most foreign investors in Turkey come from the United Kingdom, Austria, Luxembourg and the Netherlands.

Many factors contribute to the success in the FDI in Turkey. First and foremost, economic stability plays a very big role. Investors are assured of security in their work and good returns from their investments. In addition, Turkey has created laws that favor foreign investment greatly. These laws protect foreign investors. Policies that are in place encourage investment in many sectors, including even the service sector. Political stability that has been propagated by the ruling party under the Erdogan’s rule has favored Turkish FDI. Intellectual property rights encourage innovations in the manufacturing industry. All these factors contribute to sustained growth in the economy of Turkey. The financial stability in Turkey has been the product of the reforms made in the new regulations in social security. Bureaucracy has been minimized to a large extent. These regulations meant that foreign investors did not have to obtain authorization in order to establish a company in Turkey.

Moreover, the government of Turkey abolished the policy on the minimum foreign capital requirement of fifty thousand US Dollars for an investor before establishing a company. Also, the new policy does require an investor to establish limited liability companies or stock companies alone. In other words, an investor can set up any kind of company in Turkey. Foreign investors can indulge in any form of business in the country without any restrictions. These new policies have attracted many investors. Laws that have been developed with regard to the FDI is aimed at encouraging FDI in Turkey, protecting the rights of the investors, aligning investors and investments to the international standards and increasing the volume of FDI. The law defines what foreign investors are and what foreign direct investment entails. It outlines the procedures for dispute settlement, employment of expatriates and formation of liaison offices. Finally, bilateral agreements between Turkey and the neighbouring countries have contributed immensely to the FDI. So far, Turkey has signed a total of eighty four bilateral foreign investment agreements.

However, of late, the economy has been seen to be shrinking. The country has been suffocated by debts that have resulted to extensive inflation. In addition, Turkey’s economy seems to be driven by the economic conditions prevailing in the developed countries. For instance, when there was financial uncertainties in the US economy, Turkey experienced a decline in the FDI. Moreover, political instability has rocked the economy to a large degree. The nation has also experienced some degree of political instability. Such instability has also led to a decline in the FDI and the economy in general. Political instability comes up during campaigns for the elections.

Iran

           Iran has a diversified economy. It is one of the leading oil producing nations in the world. However, oil sector contributes twenty three percent of the total gross domestic income (GDP). Service sector is the leading contributor in the total GDP. It accounts for over fifty percent. Real estate is the major player in the service sector. Other services are tourism, restaurants and hotels. Manufacturing and mining contribute up to twenty percent of the total GDP. Agriculture is also practiced in Iran. It contributes about ten percent of the total GDP. Unfortunately, the total GDP has been seen to contract due to the economic challenges that have been facing the nation.

The country thrives in exports to drive its economy. Crude petroleum is the highest export from Iran, estimated at eighty one percent of all the exports. In addition, Iran exports refined petroleum as well as petroleum gas. Ethylene polymers and acyclic alcohols also form an important part in the exports as well. Its major partners with respect to exports are China, Japan and India. Iran is ranked as the top exporter of sulfur, asphalt and non-petroleum gas. On the other hand, Iran imports iron and iron products to a large extent. It imports vehicle parts mostly from Turkey.

Presently, the economy of Iran is in shambles. That is largely due to a policy agenda that maintains large subsidies to favored sectors. In addition, the public sector is bloated. One big contributor in the worsening of the economy of Iran is the over-reliance on the oil industry. The oil industry is the biggest source of revenue for the government. On the dark side, the oil industry has been the source of the many conflicts that have been experienced in Iran. The industry is poorly managed and, therefore, is shadowed with corruption. The government has not supported to private investors. In any case, it interferes with the activities of the private investors to the extent that it discourages investments. Consequently, due to the restrictive nature of the governance with regard to the private sector, the economy has stagnated. Private firms have been imposed heavy burdens by the regulators by use of unfavorable policies. Currently, sanctions on the oil industry continue to cause pressure on the public finance. The government can be said to be inefficient in this regard.

The inflation level is very high. In the year 2013, the Central Bank of Iran announced that the inflation rate in Iran had reached up to 30.2 percent mark. That resulted in rise in the consumer price index by 17.6 percent. Such inflation is unfavorable for investment in the country. Corruption also contributes to the slowdown of the economy. Some institutions are exempted from tax through illegitimate means. Such institutions have acquired a lot of wealth due to that reason. The government is to blame of this mess because it abolished the independent financial watchdog. Moreover, the judicial system is highly controlled by the government. It is not independent from politics. The president is responsible from appointing the head of the judiciary. Then, the head of the judiciary appoints judges. In such an environment, corruption is bound to thrive. The government has used unlawful means to confiscate property belonging to the minority religious groups.

Unemployment in Iran is about 10.5 percent as at the year 2014. These are the people who are actively looking for a job. The level of unemployment is high due to high adverse economic uncertainties. If the level of unemployment in a country is high, it to the risk of corruption as many jobless people seek unorthodox means to get employed. Surprisingly, the government does not have any plans to arrest this problem. The majority of the unemployed are the youths. The situation becomes worse when the unemployed youths are not able to engage in entrepreneurial activities due to the unfavorable regulations and policies.

Egypt

           Egypt is a country that has showed the world that hardships cannot always make a nation remain low. That is so because despite being a country in the African Saharan region, it has thrived in economy. It has limited amount of arable land which impairs its ability to grow economically. In addition, its population is expanding at a high rate. The major economic activity done in Egypt is agriculture. Much of the arable land is extensively exploited for cultivation. It depends on the water from river Nile. The water is trapped in Aswan high dam in Egypt. The dam has enhanced agricultural activities even in areas that were otherwise not cultivated. However, agriculture has not been practiced in large scale because of the large population that requires land for settlement. Consequently, moat of the agricultural activities are done in small scale although labor-intensive. Nonetheless, it is estimated that almost a third of the Egyptian workers are employed in the farms. The crops grown are rice, wheat, beans, corn, tomatoes, sugarcane, dates and citrus fruits. However, cotton is the principle crop grown for economic purposes. In addition, cattle, sheep, donkeys and goats are reared in the country both for commercial and subsistence purposes. Fishing industry is also vibrant in the country.

There are several aspects in the country’s economy that contributes to its growth. The country produces a lot of petroleum products and natural gas. In addition, the mining industry is very vibrant. The principle minerals in the country are iron ores, salt, phosphate, limestone, manganese, gold and gypsum. These minerals are mined, processed and then exported. The leading manufacturing industries are textile industry, oil refining, pharmaceuticals, construction materials, hydrocarbons and metals. Food industry is also very important as far as the Egyptian economy is concerned. Besides exporting unprocessed foods, the industry is involved with processing foodstuffs for export. Tourism sector also contributes immensely in the economic growth. Both local and international tourism leads to the growth in the economy. Egypt has many tourist attraction sites, including the historic pyramids. Thee major exports from Egypt are refined petroleum products, textile, cotton, chemicals and metal products. Its major imports are foodstuffs, chemicals, wood products, machinery, fuels and consumer goods. It associates mainly with the United States, Germany, Italy, Saudi Arabia and France.

However, the country is still struggling to become economically stable. Many factors have contributed to the economic showdown in the country. First and foremost, there is massive inefficiency in the way state industries are run. That results in unprecedented loss on the side of the government. In addition, the public sector is highly bloated. The government does not support the interests of the private investment. Unfortunately, the government has also invested heavily on the military at the expense of the economy. That has resulted in a high rate of inflation. Moreover, there is high rate of unemployment in the country. Worse still is the fact that the country has a huge public debt that requires taxpayers’ money to settle. The nation is also experiencing massive corruption that hampers investments. The government’s poor regulatory framework limits entrepreneurial growth. There are large income disparities among the Egyptians. During the regime of President Hosni Mubarak, the economy slowed down tremendously as a result of political and security uncertainties. These affected tourism, construction and manufacturing industry.

Saudi Arabia

           Saudi Arabia is an oil-based economy. The country ranks as the highest producer and exporter of oil. The economy of Saudi Arabia is centrally regulated by the government. The petroleum sector in Saudi Arabia contributes fifty five percent of the country’s total GDP. In addition, the sector accounts for about forty five percent of the government’s budgetary revenue. Of all the exports from Saudi Arabia, petroleum contributes about ninety percent of the total export earnings. Therefore, petroleum sector can be viewed as the driver of the economy of Saudi Arabia. The major partners that Saudi Arabia trades with are the United States, South Korea, Japan, India and China.

The private sector also contributes to the growth of the economy. It is approximated to contribute about forty percent of the total country’s GDP. The government is facilitating the growth of the private sector. Its aim is to diversify its economy. In addition, the private sector is supposed to increase the employment in the industry. Such move will create employment for the many youths that are uneducated and lacking technical skills. The government targets this diversification in the fields of power generation, telecommunications, petrochemical sectors and natural gas exploration.

Saudi Arabia is the largest recipient of the foreign direct investment (FDI) as far as the Middle East is concerned. It has favorable policies and regulations that attract foreign investors in the country. The country joined World Trade Organization (WTO) as a means to attract foreign investors. However, FDI has not been thriving well recently. That is because of the political tensions that shadow the nation. In addition, the reduced access to the credit has hampered the ability of the foreign investors in the country. Nevertheless, the government has been trying all means possible to ensure that FDI is not affected. One way in which it has managed to encourage FDI as well as attracting new potential foreign investors is by developing good infrastructure. FDI is significant in the diversification of the country’s economy. It also leads to the creation of jobs for the youths. FDI is involved I the oil sector as well as the service sectors. There are several factors that facilitated the development of FDI in Saudi Arabia. First and foremost, there is controlled inflation in the country. In addition, the exchange rate is very stable. The nation is also open to foreign capital in the upstream. Moreover, extensive privatization programs add to the contributors for FDI. The thriving banking sector drives the growth of the economy as a non-oil sector. Finally, the fact that foreign investors can access oil reserves at low cost as well as having high standards of living gives them interest in working in investing in Saudi Arabia.

However, Saudi Arabia has its share of setbacks that derange the economic growth trend. First and foremost, corruption is rife in the nation. The judiciary is slow in action. In addition, it is non-transparent. That hampers private and foreign investments. The government subsidies are extensive in the public sector. Government subsidies and state-owned enterprises lead to a distorted economy. Moreover, the government limits foreign investments to certain sectors of the economy alone. That is a discouraging factor to the FDI. The government controls the banking sector and thus offers subsidized credits to the preferred sectors. That signifies the corruption level.

Syria

           The economy of Syria is grounded on oil, agriculture, tourism and industry. The agricultural sector in Syria accounts for about twenty nine percent of the total GDP. The main agricultural products produced in Syria are cotton, wheat, barley, chickpeas, lentils, sugar beets, eggs, mutton, beef, milk and poultry. Cotton is the main cash crop. Agriculture sector creates employment opportunities for the large proportion of the population. Much of the cotton that is produced is used in the textile industry locally to produce clothing. Syria is recognized as the second largest exporter of olive after Tunisia. Oil is the principle export from Syria.

The major exports from Syria include crude petroleum, refined petroleum, non-retail pure cotton yarn, calcium phosphates and petroleum gas. The major destinations for the exports from Syria are Germany, Italy, Saudi Arabia, Netherlands and France. Syria has both bilateral and multilateral trade agreements. Syria imports cars, semi-finished iron, sugar and corn. Imports are made from China, Italy, Turkey, Ukraine and Russia. The trade agreements enable the economic development and growth of Syria. The major industries in Syria are textile, food processing, petroleum, beverages, phosphate rock mining, tobacco, cement, car assembly and oil seeds crushing.

There are various challenges that face the economy of Syria. First of all, Syria has accumulated a high debt over time due to the overreliance in the foreign aid. Fortunately, the country has managed to pay much of the debt with some lenders opting to forgive her debts. Moreover, the rate of unemployment is the country is high. It stands at twenty percent. That is due to high population and poor government policies. Private sector has not received necessary support to be able to invest. It is estimated that about seventy percent of the Syrians earn less than one hundred dollars per month. That is an alarming percentage. In addition, some families live with no income. Finally, corruption is rife in the country and its effects on the economy cannot be underestimated. It is widespread. Corruption is a predecessor of bureaucracy. Regime officials and their families are the direct beneficiaries of the illicit economic system. The nation’s legal system is ineffective to counter the problem of corruption. The judiciary is neither transparent nor is it independent. Inflation is also a big problem that discourages the growth of the economy. It results from widespread subsidy reductions. The labor market suffers immensely from the government’s interference. Political uncertainty and repression trade has weakened financial stability. In addition, civil unrests that occur in the country become barriers to the international trade and investment. Also, the fact that the central bank has imposed restrictions on the foreign currency exchange on banks has hampered economic growth to a large degree.

Conclusion

           The five countries discussed above shows how economy is in the Middle East in a general sense. There is a clear indication that most of the countries in the Middle East are still in the developing stage. There is no country in the above discussed countries that has attained a developed country status. Most of these countries are trying hard to gain world economy confidence. One major fact that cannot escape notice is that many nations in the Middle East depend on petroleum industry to drive their economy. All these countries have very rich oil deposits. As much as these oil fields have served to bring prosperity to these countries, they have also served as the source of conflicts between countries. Civil wars also usually arise within a given country. Many civil war cases have been experienced over time in most of the countries in the Middle East. It has been noted that the most important cause of failure in the growth in the economies of these nations is the level of corruption in the governments. Besides corruption, mismanagement of the resources in the countries also contributes to the inability of the economy to grow. It is, therefore, clear that all the countries in the Middle East are under the category of the developing nations.

References

Alizadeh, Parvin, Hassan Hakimian, and Massoud Karshenas. The Economy of Iran: Dilemmas of an Islamic State. London: I.B. Tauris, 2009.

Aydın, Zülküf. The Political Economy of Turkey. London: Pluto Press, 2010.

Haddad, Bassam. Business Networks in Syria: The Political Economy of Authoritarian Resilience. Stanford, California: Stanford University Press, 2012.

Hinnebusch, Raymond A., and Søren Schmidt. The State and the Political Economy of Reform in Syria. Fife, Scotland: University of St. Andrews Centre for Syrian Studies, 2009.

Milivojevic, Jovanka JoAnn. Iran. New York: Children’s Press, 2008.

Niblock, Tim, and Monica Malik. The Political Economy of Saudi Arabia. Abingdon, Oxon: Routledge, 2009.

Oweiss, Ibrahim M. The Political Economy of Contemporary Egypt. Washington, DC: Center for Contemporary Arab Studies, Georgetown University, 2010.

Özbudun, Ergun, and Aydin Ulusan. The Political Economy of Income Distribution in Turkey. New York: Holmes & Meier Publishers, 2010.

Pateman, Robert, and Salwa El-Hamamsy. Egypt. New York: Benchmark Books/Marshall Cavendish, 2014.

Sheehan, Sean. Turkey. Tarrytown, NY: Marshall Cavendish, 2014.

Togan, Sübidey, and V. N. Balasubramanyam. The Economy of Turkey Since Liberalization. Houndmills, Basingstoke, Hampshire: Macmillan Press, 2010

Zuhur, Sherifa. Saudi Arabia. Santa Barbara, Calif: ABC-CLIO, 2011.

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