The implications of the financial crises
In the past years the world has suffered the largest financial crises ever experienced which led to drastic increase in many countries inflation due to its effects in the financial market. The financial crisis experienced globally has affected many states across the globe even the ones thought have large liquidity due to their large natural resource deposits such as the gulf states. The gulf region seemed to be cushioned from the crises but not isolated at all due to its large oil production which had increased in price. The demand for the other commodities seemed to lower but the demand for the oil seemed to stabilize leading to the insulation of region from the financial crises as it is the main exporter of oil products. ( Seznez, 1987).
Though the gulf region was less affected by the global financial crisis than the other world countries because of its economic openness and the large deposits of natural resources the real estate and the insurance sectors were the beneficiaries as many investors were investing their cash onto them. The increase in the price of the oil led to investment in the real estate and the insurance though a risk area of investment because they wanted to maximize the profits. The real estate and the insurance are privately owned institutions and the investors directly borrow their capital from the banks and the rest is generated from other business ventures, in the event of financial crisis currently in the world many gulf region governments have concentrated on how to develop their construction, transport and the oil production sectors as the financial crisis resulted to fall in the price of crude products which are the man sources of finance in the gulf region. The investors turned to invest in the real estate and the insurance as the fall in the oil price led to tight liquidity in the region resulting to a increased need for the real estate and property insurance. (Rivlin, 2001).
The GDP growth is expected to decline and the unemployment percent is expected to increase in future as the companies will have to sack some of its employees in order to survive in the financial crisis economy. The real estate, construction and finance seems to suffer greatly in the wake of the financial crises due to the cynical economy in the gulf states which had suffered a boom in fast leading to larger investments in the sector. The business in the sector seems to slow down but not coming to a stand still but there is no general knowledge of what is going to happen in future as the investment in it seems to lower due to the lose of the currency value and the investor confidence with the sector which has resulted from the global financial crises. The Dubai real estate investors seem to pull the gulf region investors to buy houses in Dubai hence bringing down the cost of purchasing and investing in the real estate which has led Dubai to thrive in the financial crisis economy. The global financial crisis has led the gulf region banks to suffer liquidity problems after the foreign investors pulled out hence revaluing the currency value in the region. The gulf region depends entirely on foreign labor which in the wake of the financial crisis as shifted to move back to their respective countries which has resulted to economic slow down in the region. Seznez, 1987).
The global financial crisis affects the insurance in that it will mount pressure on formal and informal protection mechanisms which will directly affect the reserves for pension and accident funds. Insurance funds are vulnerable and most affected by fluctuations in the financial markets due to their weak investment strategies which are incapable of dealing with the market fluctuations (.Rivlin, 2001). In the gulf region the insurance fund reserves are affected by the large foreign investments which limits them to exposure in the international financial markets and leaves them to trade in the domestic markets. The other factor that tends to affect the insurance funds in the current financial crisis economy is its limitedness in the financial market in the gulf region where the funds are used to finance governments development projects. The financial crisis is likely to lower the employment rate hence will lead to a decline in revenue contribution thus a low investment in social security in gulf region is expected to occur, the increased levels of unemployment which to as result of the financial crisis will tend to increase the demand and the need for social assistance and other safety benefits. The economic crisis will have an outstanding impact on health and safety of the occupations as a result of increased enterprises which tend to provide poor working conditions and environment. (Rivlin, 2001).
Ways of improving the current situation
In order for the gulf region to survive and remain stable in current financial crisis economy it should be able to put in action measures and policies which are coordinated to stabilize the financial system, promote employment and increase social protection in the region. The measures should not only be geared onto solving the current situation but to provide long term solutions to the crisis such as the high levels of income inequality and the insecurity of the economy. Gulf region enjoys a kind of economic insulation in the current economic crisis hence needs a comprehensive policy which considers national conditions and resources which will encourage the Gulf states to view the financial crisis as an opportunity to implement reforms which aim at strengthening insurance policies and employment. In the economy were there are several financial crisis facing with consequences running from the employment to the insurance the Gulf region states therefore should put in place stronger employment, economic and labor policies which allow the member states to discuss the impacts of the financial crisis in both short and long run and state employment as a socio-economic development initiative in a retarded economic growth and in order to reduce poverty in the region (Seznez, 1987).
There has been an increase in the jobs lost within the Gulf region hence policies initiated should focus on ensuring that there is enough credit in circulation and there are no lending shortages in the market in the same time putting in place counter cynical financial reactions which will help in moving the economy to the desired direction and offering support to the growing enterprises by helping them to access credit immediately and rule the possibility of cash flow problems (Rivlin, 2001).
There should be active labour policies and programmes in the market which can be strengthened and used to support employment creation in the financially crushed economy which can be inform of wage subsidies and training given to the unemployed citizens, an insurance scheme for the unemployed should be formed to carter for the needs of the jobseekers in the member states which will strengthen the services offered by the employees and adopt agendas which ensure commitment in achieving a productive and a decent employment forum. (Seznez, 1987 ) The Gulf region states should put in action measures that protect its citizens from layoffs in the private sector and the private sector to be able to prove that the worker has violated the labour laws of the company and have proved to be inefficient in order for a layoff to take place which will be done to the government but the protection should only be granted to the nationals but not to the foreigners in order to shield the job market from foreign labour. Other factors should have policies which support the private sector and are able to sustain the economical demand and improve the mobility of the workforce by improving its skills (Rivlin, 2001).
As labour market conditions tend to change every now and then employment institution should be able to provide jobseekers with the skills which are needed in the current job market through provision of job broking services, generation of labour market information and administer labour market adjustment programmes and offer unemployment benefits to the unemployed. The Gulf region should adopt well functioning employment services as the occupational mobility increases with mostly due to the economic crisis hence this will prevent any kind of workforce mobility in the region. The absence of unemployment benefits in the Gulf region has led the nationals from these states to over rely on public jobs and the government to over under invest its public employment services. (Rivlin, 2001 ).There should be a regular national and regional flow of the labour market information in the gulf region in order to have a clear understanding of the crisis or the problems facing the labour market and have a constructive and a transparent in the employment discussions in the region and ensure a good monitoring of the employment impacts and policies used in the labour market as the labour market data has been weak in the Gulf region compared to other states in the growing economy.( Seznez, 1987 ) The labour information generated should be made public as the the Gulf region has been not making its labour data statistics public in the past hence leaving nationals without any knowledge about the labour market and these information are vital in monitoring the labour market. (Rivlin, 2001 ).
The gulf region on order to be on the safe side in the event of financial crises in the future it should be able to explore and invest in other available areas of investment and not to focus on only the investment zones it has ventured since times in memorial, this will make it prepared in the event of financial crisis. The gulf region for many decades it has lived without its own currency but relying on other countries currencies such as the US dollar thus for it thrive in the current economic situation it should come up with its own currency and stop relying on foreign currency, for many years the gulf region has ignored to have a monetary union but for it survive in this financially crushed economy should now form a monetary union. (Seznez, 1987). The monetary union will be in a place to help in the regulation of the market within the gulf region and be in a place to bring together the Gulf cooperation countries (GCC) member states.
The Gulf region states should move and team up financial institutions which will enable the consolidation of the market and build a strong economical background which will enable it to stand in the current financial crisis. (Rivlin, 2001). In the gulf region there are many small Islamic banks which can not compete with the whole sale banking offered by major Islamic banks hence if they were merged they will also be in a position to compete effectively with the major banks.
- Jean-Francois Seznez, (1987). The Financial markets of the Arabian Gulf. Routledge Publishers.
- Paul Rivlin, (2001). Economic policy and performance in the Arab world, Lynne Rienner Publishers