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In all GCC countries the state controls the real economic process through ownership of the crucial oil sector and other major sections of the economy such as heavy industries and telecommunications. This has led to price controls, high production costs and inefficient use of resources as well as having made the region a difficult environment for the private sector to operate in. In most GCC countries the whole economy rotates around the publicly-held oil industry, an industry notoriously lacking the flexibility to adapt to change.
There are, however, some positive exceptions to this.
With the creation of a large entrepôt harbour, the United Arab Emirates have managed to set up a second pillar in their economy and Bahrain has established itself as an important financial centre for the region.
The financial systems of most GCC countries are still underdeveloped compared to countries on a similar development level. Domestic banks and government institutions finance the fiscal deficits by buying up government bonds, which leads to crowding out of private issues. The financing of the private sector is severely
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hampered by restrictions on direct foreign participation in domestic equity markets, which are dominated by a few large, mostly closed and family-owned companies.
In most countries, the majority of the population is employed by the state, creating a large fixed expenditure item on the state budget. About 60% of the population is below the age of 25 and population growth in the GCC countries is more than twice the world average. If no jobs are created in the private sector for these newcomers, pressure will be put on state budgets and social tension will increase.
To make their economies less vulnerable to the volatility of their oil revenues, the GCC countries will have to focus on privatisation and deregulation. The recent oil price shock highlighted the internal reason for the low level of foreign investments in these countries – even though the huge income they had amassed with their oil revenues had allowed the global trends of liberalisation and internationalisation to pass them by. With the oil price recovering, the pressure to undertake these reforms could wane.
However, policy makers in the GCC countries have seen the need for reform. Countries like Kuwait and Saudi Arabia are looking into the possibility of involving foreign investors in certain important industries, such as oil and telecommunications. This will attract the foreign capital that these countries have been starved of for such a long period and could precipitate a substantially higher economic growth path for the region.
Although the Middle East’s population recently passed 370 million, growth rates are now levelling off rather than increasing. Demographically – although not yet politically – young people dominate the region. Children and youths who have not yet to make their political, cultural and economic mark on the world now make up one-third and one-half of various states' populations. This generation will face a political order dominated by ageing men accustomed to wielding total control.
Some analysts predict that the region's future will hinge on the young's ability to break the spell of political authoritarianism, cultural repression and economic stagnancy. 
In other parts of the Middle East region, the dawning of the new millennium is a time of transition with a younger generation of rulers coming to the fore. To cement their own legitimacy, promote development and avoid being left behind in the drive for globalisation these leaders are seemingly growing more attentive to the needs of their people.
This transition is well under way in certain countries. There are new rulers in Jordan, Morocco, Qatar, Syria and Bahrain.
However, although more open and benevolent than the old guard, the new leaderships will move their countries towards a more open political system only slowly and cautiously, and depending on their own particular circumstances.
The shift is likely to be much faster in Morocco and Jordan, which have a better established tradition of political pluralism.
The region's rulers will have to strike a delicate balance between needing to ask people to make much-needed sacrifices and averting the social unrest which could destabilise the political order and impede foreign investment.
Economic liberalisation will exert pressure for more accountability and for checks and balances in the political system. And, in return for open markets and increased competition in line with norms imposed by the age of globalisation, local industries will be hurt and, in the initial stages, unemployment will worsen.
Generalisation about the region becomes even more risky when it gets linked to hopes and anticipations of a new era.
It is helpful to remember that over the last century, there have been several occasions when events have had a major impact on the region.
The relationship between the Middle East as a whole and the world economy is still characterised by structural weakness and dependency. Apart from oil, it exports no major primary product. All export activity happens under conditions of persistent inequality. Only Israel, Turkey and, to a lesser extent, Tunisia have significant exports to the OECD states.
In terms of food, the region is increasingly dependent on imports. Capital investment is minimal and the region hardly figures in Third World discussions of foreign direct investment (FDI), up from around US$50 billion a decade ago to US$250 billion now. And on the map of globalisation, the Middle East hardly figures. Against this backdrop, multiple environmental pressures are also growing: Urbanisation is producing overcrowded cities, cultivable land is neglected or used for other purposes, water reserves are falling and food sufficiency is declining. Relations between the states of the region themselves remain also dominated by suspicion, conflict and confrontation. Although other regions of the world – not just Europe and North America, but parts of Latin America and Southeast Asia as well – are moving in the direction of effective economic cooperation, there is no serious contemplation of economic cooperation between Middle Eastern states and trade, investment and exchanges of know-how and goods between Middle Eastern states remain minimal.
Militarily, the region is, like the Far East, one of the main areas where interstate military rivalry prevails.
Expenditures and a sense of insecurity, far from decreasing with the end of the Cold War, remain as high as ever. In the Gulf, Iraq remains contained. Saudi Arabia has embarked upon an arms purchase boom and Iran is systematically building up its military potential.
However, the people of the region are changing with the times. At the top, the leaders who have dominated the region since the 1960s are leaving the scene and new faces are becoming visible. At the bottom, the region's population is exploding. The majority of the population is now under the age of 25 and has very little memory of the formative events that happened before 1990.
If the challenges – economic, intellectual, and political – are met, there is a real possibility that the fruitless politics of past decades can be transcended.
The international context has also changed. The Cold War has ended and the USSR has disappeared as a significant strategic ally for some Middle Eastern states.
The former Soviet republics have provided neither economic nor political openings that many in the Middle East had expected – they are largely isolated, authoritarian and poor. The politics of pipelines and competition among different variants of nationalist and Islamic models have fostered a new geopolitics in which all states – Turkey and Iran most obviously, but also Israel and some Arab states – are included.
And while dialogue between Israel and its Arab neighbours can help the Middle East foster an environment conducive to stepped-up economic growth worthy of the region’s massive potential, peace alone will not be able to deliver jobs.
Failure by the region's rulers to effectively restructure their economies could negate any gains made by peace brokers.

KHALAF AL HABTOOR