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Emerging Markets

Why the Gulf Crisis Stalemate Fuels Fears in Muslim Asia

 7 min read / 

Vulnerable Asian states are bracing for possible pressure to back a Saudi-UAE boycott of Qatar as efforts to mediate an end to the almost month-old Gulf crisis seemingly stall and Saudi Arabia and the UAE struggle to rally credible Muslim and international support for their campaign against the recalcitrant Gulf state.

Saudi’s Efforts to Widen the Boycott

Countries like Bangladesh and Pakistan, two of the most populous Muslim states, as well as India, home to the world’s fourth largest Muslim population, fear that Saudi Arabia could threaten to expel millions of migrant workers and expatriates in a bid to force them to join the boycott of Qatar.

Saudi Arabia has a history of using as leverage, migrant workers, whose remittances constitute the backbone of foreign currency liquidity of many supplier countries and whose Gulf jobs reduce pressure on domestic labour markets. In the most dramatic instance, Saudi Arabia expelled some 700,000 Yemenis in 1990 in retaliation for Yemen’s refusal to wholeheartedly back the US-Saudi-led rollback of the Iraqi invasion of Kuwait.

A similar number from a host of countries were forced to leave the kingdom in 2013 after Saudi Arabia tightened its labour law to ban foreign workers from running their own businesses and make them more dependent on the Saudi employer who initially facilitated their employment.

Speaking to the BBC, former Bangladesh ambassador to Saudi Arabia Abdul Momen Chowdhury warned that “nothing is impossible” in how the kingdom might seek to build support for its campaign against Qatar. “If anyone obstructs what they want or does not agree with their opinions, they are never hesitant to act,” he said.

No Quick Solution

Concern about possible pressure was fuelled by recent Saudi and Emirati statements that suggested that there was unlikely to be a quick resolution to the Gulf crisis. The statements suggested that the crisis was about much more than alleged Qatari support for militants and Islamists.

Saudi Foreign Minister Adel al-Jubeir, in Washington to lobby for US support, ruled out a compromise or face-saving solution when he told journalists that demands tabled by a Saudi-UAE led block of economically dependent nations were “non-negotiable.”

Saudi Arabia, the UAE, Bahrain and Egypt have given Qatar ten days to comply with demands that include halting support for militants and Islamists, closing a Turkish military base in the Gulf state, reducing relations with Iran, and shutting Qatar-sponsored media, including the controversial Al Jazeera television network. Qatar’s detractors have threatened further sanctions if it fails to comply with the demands.

UAE ambassador to Russia Omar Ghobash, in a clear and unabashedly frank indication that the boycott is about imposing policies and values rather than primarily about fighting political violence, defended the Saudi-UAE demand that Qatar shut down media like Al Jazeera by telling The Guardian: “We do not claim to have press freedom. We do not promote the idea of press freedom. What we talk about is responsibility in speech.”

The Long Campaign Against Al Jazeera

The UAE has long sought to muzzle Al Jazeera, which has revolutionised the Arab media landscape since its inception in 1996. It broke the mould of staid, heavily censored, government-controlled Arab broadcasting with more hard-hitting, freewheeling reporting, and giving air time to critical voices. Al Jazeera has, over the years attracted criticism from various Arab autocrats as well as many others, including the Bush administration, which accused it of being an outlet for Al Qaeda.

A US diplomatic cable, released by Wikileaks, quoted UAE Crown Prince Mohammed bin Zayed as urging the United States in the walk up to the 2003 US invasion of Iraq to force Qatar to reign in Al Jazeera. Prince Mohammed allegedly went as far as asking a US general to bomb Al Jazeera. It wasn’t clear if the UAE official was referring to the tv network’s headquarters in Doha or its offices in Baghdad.

A US missile subsequently hit an electricity generator at Al Jazeera’s office in Baghdad, killing two members of its staff. The US military said at the time that Al Jazeera “was not and never had been a target.”

Abdulrahman al-Rashed, a prominent Saudi journalist with close ties to the government, echoed Mr Ghorbash’s theme in a column for Saudi Arabiya’s television network. Mr Al-Rashed argued that the core of the conflict was Qatari support for opposition groups in the kingdom and other Arab countries and the fact that they were granted airtime on Al Jazeera.

Other Measures the Coalition Could Use

In an ominous warning, Mr Al-Rashed suggested that Doha could experience its own Raba’a al-Adawiya Square, a reference to a Cairo square on which hundreds of supporters of the Muslim Brotherhood were killed in August 2013 by Egyptian security forces. The demonstrators were holding a weeks-long sit-in on the square to protest a Saudi and UAE-backed military coup that toppled Mohammed Morsi, a Brother and Egypt’s first and only democratically elected president, and brought General Abdel Fattah Al Sisi to power.

The coup was preceded by a mass demonstrations against Mr Morsi that, feeding on widespread criticism of his presidency, had been co-engineered by security forces with the backing of Saudi Arabia and the UAE.

Saudi and UAE media have in recent weeks run interviews with little-known dissident members of Qatar’s ruling Al Thani family as well as former military officers opposed to the policies of Qatari Emir Sheikh Tamim bin Hamad Al Thani, suggesting that the Gulf states may support regime change in Qatar. A Saudi lobbyist, Salman al-Ansari, head of the Washington-based Saudi American Public Relation Affairs Committee (SAPRAC), said Sheikh Tamim could meet the same fate as Mr Morsi.

The risk of increased pressure on Muslim nations as well as other trading partners of Saudi Arabia and the UAE stems in part from the fact that the campaign against Qatar has failed to generate a groundswell of support from Muslim nations and the international community. Most Muslim countries remain on the side lines while the United States and members of the international community have called for a negotiated solution.

Saudi Arabia and the UAE’s failure to garner widespread support raised questions about the return on investment of Saudi Arabia and the UAE’s long-standing chequebook diplomacy and the kingdom’s massive financial support for Sunni-Muslim ultra-conservative educational, religious and cultural institutions and political groups across the globe that was designed to enhance soft power. Except for Egypt, no major Arab or Muslim state has joined the boycott.

UAE officials repeatedly warned in recent days that Qatar’s distractors would take additional punitive steps against the Gulf state if it failed to cave into their demands. Those steps could include not only pressure on states dependent on the export of labour but also measures against businesses countries that fail to grant support.

Pressure on the US, Europe, China and FIFA

“One possibility would be to impose conditions on our own trading partners and say you want to work with us then you have got to make a commercial choice,” Mr Ghobash said. It was not clear if the ambassador was also referring to the commercial interests of Muslim as well as non-Muslim powers that could include the United States, Europe, and China.

Some industries are already feeling the heat without Saudi Arabia and the UAE increasing pressure. Although not yet confronted with a demand to halt all business with Qatar, shipping companies can no longer load vessels with goods destined for the Gulf state as well as its detractors that dock at ports on both sides of the Gulf’s political divide. Instead, raising costs, goods destined for Qatar have to be shipped on separate vessels that only head for the Gulf state.

In another bid to tighten the noose around Qatar’s neck, Saudi Arabia appeared to be attempting to persuade world soccer body FIFA to deprive the Gulf state of its 2022 World Cup hosting rights. SAPRAC, the Saudi lobby group, accused Qatar of simultaneously supporting sports and terrorism.

In a paper, SAPRAC reiterated the long-standing controversy about the Qatari World Cup, including questions about the integrity of its bid and criticism of its controversial labour regime. In doing so, the kingdom seemed to be ignoring at its own peril the principle that people who live in glass houses should not throw stones. Legitimate criticism of Qatar’s controversial labour regime is equally valid for that of Saudi Arabia.

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Americas

Venezuelan Digital Currency Backed by Oil

 2 min read / 

Venezuelan Digital Currency

The Story

Venezuela has announced plans to launch a digital currency, “the petro”, backed by the country’s oil and mineral reserves. The petro aims to help ease the country’s monetary crisis but sceptics claim the proposal has no credibility and will not help those in extreme need.

Why It’s Important


source: tradingeconomics.com

Hyperinflation has eroded the Venezuelan bolivia’s value by 97% this year, making imports incredibly expensive and causing many to abandon trust in the currency. The country’s oil reserves made up 95% of its exports in 2016, while oil and gas extraction accounted for 25% of GDP. Rich supplies of resources provide some initial credibility to the proposal, but President Maduro’s questionable track record when it comes to monetary policy is making many sceptical about the proposal. His currency controls and money printing have only added to the monetary crisis. Maduro has not announced when the digital currency would come into use or any details regarding how the country would create such a system.

Opposition leaders argue the country’s shortages of food and medication are far more pressing and that the digital currency will not address this. The digital currency may provide a more trusted medium of exchange, but it is unlikely to help those in excessive poverty.

Keep reading |  2 min read

Americas

Venezuela’s Inflation Is at 4000%. Here’s Why

 2 min read / 

Venezuelan Digital Currency

Venezuela’s currency, the bolivar, has lost 96% of its value this year. As the currency becomes near worthless, imported food and medicine are in short supply. A humanitarian crisis is unfolding.

The government and state-owned oil company, PDVSA, owe bondholders $60bn alone and have recently defaulted on debt repayments. More defaults could mean investors seizing their stake in Venezuela’s oil.

Why Is Venezuela in Debt?

Acting upon the country endowment of natural resources made it an economic success in the mid-2000s.

Yet, while the price of oil skyrocketed during the late-2000s, former President Hugo Chávez matched this with Venezuelan public debt.

Once the price of oil dived in June 2008, lenders stopped extending credit to the country.

Oil – price per barrel; Source: Macrotrends.net

Venezuela’s Inflation

The recent defaults have caused Venezuela’s inflation to rise astronomically.

Defaults on government bonds are largely to blame for this inflation.

In 2016, OPEC found that oil reserves accounted for 95% of the country’s exports, while the oil and gas extraction combined made up 25% of its GDP.

Venezuela’s overdependence on oil and lack of saving during its heyday are the leading causes of the current crisis.

Keep reading |  2 min read

Emerging Markets

The Psychology Behind Saving

 4 min read / 

saving

The idea that the poor do not save enough money just because they are simply “too poor to save” is wrong.

Gambian farmers have in the past saved in cash (wooden lockboxes with savings were smashed open in an emergency or once the savings goal was reached), stored crops, and consumer durables. Saving in livestock and jewellery enabled other farmers to convert cash into less liquid assets to prevent unwarranted and frivolous spending. A detailed household survey conducted in 13 countries found that for many people in the developing world saving may be counter-intuitive. The poor and the extremely poor, those living on less than $2 a day and on less than $1 a day, respectively, do have a significant amount of choice in regards how to spend their money.

The Developing World

The poor do not use all of their income to buy calories, but only allocate between 56% to 78% to food. Spending on tobacco and alcohol (considered non-essential and nonfood items), and festivals (weddings, funerals or religious events) plays a significant role in household budgeting. For example, the poor in rural areas of Mexico spent slightly less than half the budget on food, and 8.1% on alcohol and cigarettes. The poor and the extremely poor spend about the same on food, which suggests that the extremely poor feel no extra compulsion to purchase more calories. Instead, the remaining income is often saved across a variety of informal saving groups, including peer-to-peer banking and peer-to-peer lending.

It is often the poor, women and the rural communities who are the least banked (those without an access to formal banking services). Not surprisingly, without an access to savings accounts or other formal financial services, it is difficult for families to manage unexpected risks, like illnesses, or plan children’s education. But the desire to save and engage with financial services is still there, as shown by a large uptake in the savings plans in Kenya despite high-interest costs, high withdrawal fees, and close to negative interest rates.

Yet, inchoate financial infrastructure in the developing world cannot on its own explain undersaving. Behavioural economists argue that the poor are no different to the rich in their saving habits: both groups are subject to cognitive biases and inherent human irrationalities and face self-control problems. When it comes to saving, “present bias” (or procrastination, proverbially) occurs when people give stronger weight/preference to an earlier option or purchase that provides instant gratification, rather than setting some funds aside for emergency use. Due to income uncertainties, however, the consequences of this “live for today” behaviour are far more detrimental to the poor than on the rich.

The Developed World

Undersaving is not exclusive to the developing world. Household saving rates, the difference between disposable income and consumption, vary greatly across the world. In 2017, Switzerland and Luxembourg, closely followed by Sweden, are the three countries with the highest savings rates. However, a higher GDP per capita does not necessarily equate to a higher savings rate.

In other words, people with higher income in the developed world countries do not always save more. Consider the US with GDP per capita $57,466 and savings rate of 5.3% and the Czech Republic, GDP per capita $35,127 and a savings rate of 6.7%. Similarly, with GDP per capita of over $43,000, the UK’s household savings rate was 3.3% in 2016, the lowest level since 1963, while in Hungary ($27,008 GDP per capita) the savings rate has been on average 4.5% in the past three years.

Final Thoughts

Is it possible to fully comprehend the monetary hurdles of low-income families? Undoubtedly, consuming today might be a rational choice and a necessity to survive. But, biases deserve context. For many in the developing world saving at home still remains hard. Technological innovation in finance and growth of electronic wallets have already alleviated some of the hurdles of saving money, but technology is not the silver bullet that will address undersaving. An active and conscious commitment to saving and awareness of biases could have a strong beneficial impact on the lives of the poor.

Keep reading |  4 min read

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