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Assignment Essay Business in Emerging Market

   

Added on  2020-04-15

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Assignment Essay- Business in Emerging MarketDo any of the member countries of the Gulf Cooperation Council have the politicalinstitutions required to escape the so-called ‘resource curse’? IntroductionThe dynamics of global politics and trade are dictated by alliances and mutual partnerships.Since time in memorial, we have seen such alliances being formed for the purposes of fulfilling acommon objective. Such an alliance is the Gulf Cooperation Council (GCC), The GCC wasformed in 1981 in Riyadh Saudi Arabia, where six middle eastern countries namely; SaudiArabia, United Arab Emirates (UAE), Kuwait, Oman, Qatar and Bahrain, came together for thepurposes of forming and political and economic alliance (Tompkins, 2012). The establishment ofthe alliance didn’t face much challenges due to their shared objectives, cultural and politicalidentities. Recently however, the GCC has been facing on and off squabbles that is threateningfragmentation of the bloc. This is majorly because of the increasing differences in regionalpolicies (Nuruzzaman, 2015). Not long ago, there was an announcement by UAE and SaudiArabia on a planned separate cooperation council. Not only that, but there also has been a Saudiled campaign to isolate Qatar, due to both countries having divergent geo-political opinions. It isstill yet to be seen, whether the bloc will withstand the stormy times it’s currently facing. Countries in the GCC are located in areas with large deposits of oil reserves; with the blocboasting of controlling 30% of the world’s total oil reserves. Saudi Arabia alone has the largestcrude oil reserves, with 17.7% (Bret-Rouzaut & Favennec, 2011). In light of this, many scholarshave indicated that the possession of natural resources does not necessarily guarantee long termeconomic prosperity. In fact, some have actually cited countries which are said to have a stuntedeconomic growth, despite possessing vast amounts of natural resources (Diop, Marotta & DeMelo, 2012). This brings us to the term resource curse. Resource curse as term is defined as, the failure of utilizing or converting the wealth emanatingfrom natural resources into positive and sustainable economic growth and equitabledevelopment. It can also be defined as a situation where countries with plenty of non-renewable

natural resources undergo a stagnated rate of growth. A number of scholarly articles havepointed out that when a country over relies or invests all their focus on a single attribute in theeconomy, in this case mining of natural resources, they tend to neglect other sectors of theeconomy and with time they will likely face a resource curse (Hendrix & Noland, 2014). Analysis of the resource curseThe resource curse gets its name from the way in which it affects the socio economy makeup of acountry. It is usually seen in developing countries with undiversified industrial sectors, once theydiscover a natural resource, there is always a tendency to over concentrate resources towardsexploration of those resources. This is due to the common belief that the new industry beacons asource of hope for economic growth; indeed, at times it does as indicated by(Gilberthorpe &Hilson, 2016). In factthe relative economic prosperity in that country is initially seen as jobs anddisposable income that was not there before is starting to be felt. The problem comes in whennow the country starts becoming overly dependent on that specific sector. In the instance ofsudden drop of prices, the GDP of that country is bound to face a sudden slump which furthercauses economic instability for example, According to (Bobylev, 2017) high oil prices can encourage substantial amount of investments inthe sector but just like any other commodity market, when there is subsequent oversupply themarket is bound to respond by causing a sudden decline in prices of the commodity and a furtherreduction in investments. However, this forecast is not always true. In the late 1990s a collapseof the oil prices was imminent with a barrel expected to be selling at $5; however, the oppositehappened with the price soaring to a peak of $145 in 2008. Recently, there have been major fluctuations of global oil prices with price going from as high as$115 per barrel and dropping to as low as $45 and $50. That’s a 60 percent collapse in price. Themassive price volatility in the oil market has a major impact not only to the member countries ofthe GCC but all major oil producing countries. However is was interesting to note that SaudiArabia was not as hard pressed as other GCC countries; most cite this being due to theireconomic shift from over dependence of oil production to investments in other sectors of theeconomy with infrastructure and tourism taking center stage.

During the 1980s and most of the 1990s; there was a drop in oil prices. In those periods, non-oilrich economies managed to grow at a faster pace on average than their oil-rich counterparts.Over concentration of capital and other economic resources to a single sector of the economy canleave countries vulnerable in the instance of changes in the said industry. A good example isSaudi Arabia whose capita income dropped from about $35,000 in 1980 to nearly $7,000 justbefore the recent increase in oil prices. Now it stands at about $25,000 after the prices of oilincreasing by more than three times since early 2000s. Countries with more diversifiedeconomies have a variety of options on how to weather global economic cycles as compared totheir counterparts with concentrated economies.Taking Norway as an example, it can be stated that Norway has utilized its oil reserves to build arobust economy unaffected by the price fluctuations of oil. It can be established both Norwayand Saudi Arabia had more or less the same GDP in 2005. And like other GCC countries,Norway is also an oil producer; however, the major difference between Norway and the GCCcountries emanates majorly in their economic and social models (Jbir, 2013). In terms of GDP,Norway GDP is almost as much as Saudi Arabia but with only a sixth of the population whichindicates a higher productivity by almost six times. Norway also boasts of having the highestwomen employment rate in the world. Their oil reserve fund is constrained from depleting itscapital. It can however use the proceeds of oil to cushion its economy from the effects of cyclicaleconomic fluctuations and to implement other developmental agenda. These characteristics arebarely sharedby the GCC member states.From the case of Norway, it can be seen that countries with natural resource are notpredominantly expected to experience the paradoxical ‘resource curse’. Just a shift independence of revenue generated from natural resources and formulation of an alternativeeconomic structure can be able to offset the said effects of resource cursePolitical standpoint of the GCC in dealing with resource curseMany articles have cited that the countries in the GCC have been influenced by the resourcecurse and are bound to eventually fail due to plundering and neglect of the leadership to fulfilltheir social contract with the citizens. However, (Schwarz and de Corral, 2013) disputes thisnotion indicating that most countries in the GCC are neither failed states, nor are they fully

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