The Middle East

Pick a Region:. . The Middle East

Economic Growth and Decline
The Middle East has experienced a growth and decline cycle over the last thirty years.

The period from 1965-1985 represented a time of tremendous economic growth. This growth was facilitated by the dramatic rise in oil prices, which were related to the 1973 Arab-Israeli War (see Arab-Israel Wars) and the 1979 Iranian Revolution.

As oil prices rose to new highs, most states in the Middle East benefited from heightened revenues. Oil-producing states (especially large producers such as Saudi Arabia, Iran, Iraq, Kuwait, the United Arab Emirates, and Qatar) benefited directly in the form of high export earnings. Likewise, these states had many job opportunities available as a result of the booming economies of the Gulf.

The non oil-producing Middle Eastern states also reaped some benefits from the oil-producing states. Many people who lived in the non oil-producing states went to the oil-producing states to earn money as teachers, construction workers, oil-field workers, etc. The money these "guest" workers sent home to their families was of tremendous importance to the national income in states such as Jordan, Egypt, Yemen, and the Palestinian areas. This money--spent in their home location--boosts their national economies. During this period of economic growth these non oil-producing states also benefited from increased levels of foreign aid received from their oil-producing neighbors.

As a result of this newfound wealth, enormous social achievements occurred in the Middle East. For example, infant mortality was halved, and life expectancy rose by more than ten years. School enrollment went up substantially, and adult literacy rose from 34% in 1970 to 53% in 1990.

Another result of this newfound wealth was a widening in the income gap among the Middle Eastern states, meaning that while all the states increased their national wealth during this period, some states grew at substantially faster rates than others. On the higher end of the gap, major oil-producing states, especially those in the Gulf with small populations, were able to achieve incomes per person rivaling, and in some cases surpassing, western European economic levels. On the lower end of the gap, states such as Jordan and Yemen remained amongst the poorest in the world.

The economic growth of the 1970s and early 1980s came to a decline in 1986 when the price of oil fell dramatically from $28 per barrel in December 1985 to $10 per barrel in July 1986. The drop in price was a result of the overproduction of oil. Suddenly, the huge foreign export earnings that had driven the growth of the last two decades were drastically reduced. This decline in export earnings affected all the states in the Middle East in the following ways:

people in the oil-producing and non oil-producing states lost jobs; and
non oil-producing states lost foreign aid from the oil-producing states.

Economic Future
Two factors are currently affecting the economic growth and development in the Middle East. The first factor is the high rate of population growth. In the region, there is an average population growth rate of 3% per year. This 3% average population growth rate means that the population in a given state will double about every 20-30 years. This average regional population growth rate is the second highest growth rate of any region in the world, exceeded only by sub-Saharan Africa region. In Iraq, Libya, and Saudi Arabia it is over 3.5%, and in UAE and Yemen it is well over 4%.

Large population growth rates generate tremendous stresses on the states' resources as these people need access to clean water, food, medicine, education, and so on. A large population growth rate also places strains on the economy as there is an enormous need to create new jobs in order to absorb the growing labor supply. According to one estimate, about one million people in the Middle East will enter the job market for the first time in the year 2000. Of these, only about 200,000 will be able to find employment. The result will be large-scale unemployment. Unemployment rates in the Middle East run from below 10% in Saudi Arabia and Syria to over 30% in Iran, the West Bank, Lebanon, and Yemen. Some estimates put the unemployment rate in Gaza as high as 50%.

The second factor affecting the economic future of the Middle East is fluctuations--in either direction--in the price of oil.

In an effort to reduce their reliance on oil revenues, many states in the region are making major efforts to develop alternative economic activities. Efforts are being made to further develop such sectors as banking, tourism, light manufacturing, and agriculture.

Most economists do predict continued economic growth for the Middle East, though not evenly spread across the region. Moderate economic growth rates of around 3-5% are expected though the actual rate will be heavily dependent on such things as the fluctuating price of oil, the rate of foreign investment (currently low), the efficiency of the large number of state-owned industries, and the population growth.