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The Gulf/Middle East Recession 2023



Although we see many news articles focused on a global recession and food crisis, this article is focused on the possible Middle East recession. There is a reason why we need to look at the Middle Eastern developed economies for early signs of recession. The recession in the western countries are widely covered in the media; while its impact on the Middle Eastern Countries are usually neglected. The only difference between 2008 and today is that today the government and companies are aware of the coming financial crisis in 2023. Therefore, we will see companies and governments preparing for the financial crisis without panicking the public.


Since most of the developing countries have a direct or indirect link to the remittance from the Gulf countries, there can be a significant impact on the developing countries. Therefore, to prepare for the worst and hope for the best, we need to analyse and understand the cause and consequences of a recession in the Middle East.


This article is a continuation of my previous articles that relate to recession and the Middle East. Here, we will discuss all the factors that only matter from an expat's perspective.


Why a recession in the Middle East will be bad? Or Why is the recession coming to the Middle East?


Banking Crisis

When money in borrowed, the interest rates are considered the cost of the money. Companies take loans to expand their businesses. As businesses expand, job opportunity increases, tax collection increases and other jobs that are connected also grow (rental businesses, etc). Like a fragile chain, almost all businesses are connected either directly or indirectly. And as the businesses make a profit, loans are repaid along with the cost (interest rate). All this applies to an economy that is growing.


But, during a recession, or when recession is expected, the interest rates of these loans go up. Interest rates are increased to fight inflation. Today, we can see COVID and other factors have increased the prices of goods and services too high that people can no longer afford basic necessities. Poor people in the UK are eating pet food and using candles to cook. And all around the world, banks are increasing interest rates every month. Therefore, this will force the business to take lesser loans and reduce spending by downsizing the workforces that they have. (Link)

 

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Most of the Arab countries have their currencies connected to the US dollar at a fixed exchange rate. This helped the Arab countries to grow and expand using the cheap money when the interest rates were low. Now, since we are seeing recessions being expected in the western world that use the Dollar, a recession will reach the Arab World soon. 2008 crisis took 2 years to reach Arab countries, but now due to increased interconnectivity of the banks and businesses, it may only take weeks or months.


Expenditure and Debt

During the best days of the Middle East, they made several promises to the local native population. This ranged from social welfare, allowances, jobs, and government level assistance in all matters, including judicial. Many loans were forgiven; petty crimes were conveniently forgotten, and they even paid allowance to each individual citizen. Family allowances were based on how many kids a family had, their social status, and their proximity to the ruling class. For example, if you had a child, then you may be paid $5000 more besides the existing allowances. This was all done to silence any critics and earn the trust of their citizens; thereby legitimizing their rule in the country. In some Arab countries have made their judicial systems to favour their own citizens even if they were proven guilty.


All this helps when there is less population, fewer expenses, no ambitions and more income. Today, the case is different; Arab countries are having enormous expenses, in a fight with its neighbours over superiority, and investing in projects using debt just to create hype. With lesser income and high expenses, the socio-economic policies of the Arab Governments need to change before it is consumed by debts that it can never pay off. Every month, new billion/trillion dollar projects are being announced without completing the existing ones. And all these projects are supported by the Governments/rulers. Financially, some of the Arab countries have come to a point where they cannot survive without the hype created by the new project's announcement and investments from foolish billionaires. To summarize, the government is functioning on the hype from Ponzi schemes.

 

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Fear of another virus

As of today (23th January 2023), China is reported to have a new strain of virus circulating among its population,; a population which is expected to travel during the Chinese New Year season. Symptoms like the white lungs are being reported in certain parts of China that have a higher mortality rate than the COVID-19. Therefore, considering the negative impact of such a deadly disease, one must be prepared to survive the coming Pandemic 2.0. Just like 2020, there will be lesser flights, expensive flight tickets, business closures, food shortages and lesser job opportunities. Also, unlike 2020, today we have an ongoing conflict in Europe, potential conflicts that just require a spark to start (like Iran-Israel, North Korea, Pakistan-Taliban, China-Taiwan, and Russia-US (NATO)). Therefore, we cannot predict the actual impact of this recession.


Economic Growth

If such a virus is expected to arrive, along with a recession and war, then the tourism sectors of these countries will be decimated to a level beyond recovery. Business related to tourism will get shuttered on a daily basis. Lockdown may be put in place either by the government or by cautious citizens, on themselves. The economic growth that is directly related to foreign investments will be negligible. During 2022, some Arab countries hosted world exhibitions and sporting events to attract global tourism and investments, which was the government's utter failure to secure any investments; investments that could help their economy to transition from oil to innovation. Some people may not even realize that these stunts and hype from the Arab governments are a part of a childish competition between the rulers of these nations. There is also a sense of suppressed discontentment among the governments of some Arab Countries; but these are invisible during good times. Like the saying, only during the times of crisis will we recognise the true friend and the real enemy.


 

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Which sectors will be affected during this recession?

Recession is a contraction phase in the economic cycle; therefore, all the signs of growth will see a significant negative impact. Even though all the sectors in the economy will see an impact of the recession, there are some sectors that need special attentions as the losses will be significantly higher than the others.


Real Estate

During the 2008-2010, over-leveraged real estate market was the main cause of the global financial crisis. Since 2020, we can see the real estate market under-performing. There has been huge purchases by billionaires and millionaires but these purchases are not enough to sustain the real estate market.


The recovery that we are seeing today in the real estate market is fueled by low-interest debts. People are buying up properties not for use but for market speculation. They are using the low-interest loans to purchase multiple luxurious apartments for sale in the future for higher prices. This dangerous phenomenon has artificially increased an unsustainable demand. Seeing this, many property developers in the Middle East have built high rise building using cheap, substandard and low-quality material for quick delivery. This is the reason why we are seeing fires being reported in apartments on a daily basis. It is worth noting that most of the real estate in the Middle East are being bought by the expatriates; in a region where the judicial systems are morally non-existent and has no investment security.


There are also some bizarre unverified reports of people seeing construction equipments (like cranes) not moved since 2020 in some areas. This can be attributed to the fact that some companies went bankrupt or the contractors have moved on to new projects without completing the existing ones that are already sold. Neither of these are new to the Middle East.

 

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Manufacturing

Manufacturing (especially construction related manufacturing) will see a decline in sales and revenue. As people and companies will be more focused on saving money, the volume of money in the system will be less. As spending decreases, the demand for the goods will also decrease; and therefore the manufacturing associated with those goods and services will also decrease. This is a very common economic phenomenon during a recession.


But for the Middle East, most of the manufacturing companies are associated with the construction and maintenance sector of the economy. As mentioned in the earlier point, the housing market will probably get affected and therefore the manufacturing of the raw materials associated with those projects will also decrease. The raw materials can vary from steel, pipes, cement, etc. Therefore, the labour forces associated with these industries will see mass layoffs. At the beginning, the industries will try to survive the recession by having lesser expenses and lesser employees. But if the recession stays longer, the industries may have to shut down due to rental and other expenses. During 2008, many constructions based industries in the Middle East went bankrupt.


 

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Startups

Middle Eastern countries have had taken notice of these types of business and have provided major assistance programs for its development in their respective countries. They wish to see more local people in these types of businesses. As mentioned earlier, the one family system in the Middle East is becoming unsustainable for the governments. It is also the reason why they have implemented reservations for the locals in certain jobs. The government views startups not in terms of taxation and revenue, but as a reputation and progress for the Arab people. It is like a final effort to make most of the local population transition from the state-welfare program to self-reliance.


During a recession, major startups companies fail due to lesser investments and increasing expenses. It depends on what sector the startups focus, if it falls under the essential category, then it may survive the recession. If a startup is in the post-incubation stage, then it may act like a regular company and start mass layoffs; else, it will be bankrupt. Also, worth noting that Arab locals get state backed loans and debts for startups with lower interest rates than the expatriates; this can backfire the governments if the repayment fails due to bankruptcy.


Banking

AI (Artificial Intelligence) and automation is taking over the banking industry silently and rapidly. Multiple world governments are experimenting with Blockchain based Digital Currencies that are 100% automated. All the systems used are programmed using codes based on the existing tax laws in their respective countries. Cash withdrawal is being limited around the world and people are being asked to make online payments. This enables 100% transparency that does not require any audits or due dates. Personal bank accounts are being programmed to deduct taxes at their source (TDS). This helps governments to have tax revenue during the year rather than waiting for the year end for tax revenue and budget.


Therefore, we will see people that are earning millions and having jobs titles like " Charted Accountant (CA)", "Internal Auditor (IA)", and "Certified Professional Accountant (CPA)" suddenly sitting at home and jobless, in a few years. Of course, a few of them (~0.01%) will be employed to maintain the computer programs that perform the tasks which they themselves once did.


Similar to how typewriters went extinct after the usage of printers, the age of bankers will end. I am emphasising this point for 3 major reasons: -

  • If we have to understand the scale of the change that these technologies can make, we can consider a hypothetical example.

    • If we take the Indian banking sector as an example, State Bank of India is the largest national bank. It has over 24,000 branches in India. As of March 2021, SBI employs 245,642 employees in all its branches combined. If an automation software come online in the near future, then all these jobs will become redundant (99%). For legal and representative purposes, they may need to have a branch in each state of the nation. In a digital society, where we can operate our bank accounts on our mobile phone, create new accounts, and take loans using digital contracts that are based on the national identity card, all the jobs that exist today in the banks will be redundant overnight. If you are employed in this sector, then the positive aspect is that - this technology will take 3~5 years to completely replace humans.

  • Second, the sad part of the above point is that most Arab economies could use this time (1~2 years) to begin the implementation of such technologies.

    • Artificial Intelligence is not at a level to completely replace the humans, yet. But as mentioned earlier, they can still implement the non-decision-making tasks such as filing and tax-compliance automation. It is worth remembering that the recession period in the economy is a good time for exploring new opportunities for businesses as well.

  • Finally, during a recession, banks can outsource accounting jobs to countries like India where the accounting laws are similar and salary is also lesser. Instead of having an expat accountant, companies and banks could opt for accounting firms that are specialised in overseas accounting. Therefore, instead of paying the employee's salary, insurance, accommodation, and employee visa; companies could opt for yearly 2 month option on a contract basis, because an accountant is most needed during the tax filing period. Several manufacturing companies in the Middle East have shifted their accounting departments to cities like Pune, Mumbai,Chennai, and Banglore. From a forensic accounting perspective, this will keep all the financial documentations and processing away from the jurisdiction of most of the Arab autocracies.

Advertisement Sector

As the recession starts, the advertisement sector will see a sudden growth in revenue as other business sectors rely on advertising their goods and services. But as the recession completely takes over the economy, advertisement agencies will have a very tough time to survive. As the sales decrease in other sectors, companies will panic and start advertising offers and discounts on their existing products; therefore, the sudden growth. But, as the advertisements and discounts cannot attract the intended sales, companies will reduce advertisement as a part of cost-cutting. Also, most companies in the Middle East have their own advertisement and marketing department.


 

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Tourism

Tourism sectors in the Middle East can only be affected by pandemics and war. Since this recession is expected to come with a new variant of the existing pandemic and a possible Israel-Iranian conflict, we can expect a decrease in the number of tourists arriving in the Middle Eastern region. The closer the country is to these conflicts, the more the impact to the tourism sector. It is also worth noting that this recession is global therefore, other countries are affected too, which reduces the income of all potential tourists. Similar to the points mentioned above, recession and pandemic does not affect the rich and the elite people, therefore they will come to these countries; but, will it be enough to make this sector survive, only time will tell.


Reasons why the global recession will not be severe in Arab Countries?

Considering a healthy balance in any fruitful conversation, we must also look at the reason why a recession in the Middle East will not be severe or may not affect anyone at all.

Oil

Oil may well help the Arab countries one last time before the world completely transitions to sustainable energy. As the war rages in Europe, countries coming out of lockdowns, and with more wars expected in the near future, the demand for oil will be higher again. This rise in oil prices will be temporary as the war will not last for ever and oil will not stay relevant forever.


Currently, the US is trying its best to keep the oil prices down by preventing a war in the Middle East. They intend to keep the oil prices down as long as it will hurt the Russian economy by reducing its revenue. Therefore, for some time, we can see the war situation in the Middle East (Israel-Iran) being delayed to some extent; until the US foreign policy priority changes.


War

Ever since the sanctions were applied on to the Russian economy, there has been a mass exodus of wealthy people from Russia to countries where they will not be affected. Most of these people arrived in the Middle East due to its liberal/non-existent strict financial laws. Therefore, if the middle eastern countries position their economic policy in a certain way that attracts foreign investments with citizenship or long-term visa, then we could see mass immigration of wealthy people into the region; this may help the regional economy in surviving the current global crisis. I would like to repeat; this may help the regional economy to "survive", for a certain period.


How bad will the recession be for the Expat and Migrant population?

As mentioned earlier, many decorated jobs that were once considered the pinnacle of intelligence and high standard will be considered useless in the coming years. Most of the white-collar jobs will be replaced by Artificial Intelligence; before the robots replace the blue-collar jobs. The current prototypes of AI software released to the public can score ~75%-80% on any test that a human can do. Considering these technologies evolve in minutes and a perfect excuse for a recession is coming, I can firmly say that the middle class expatriates in the Middle East will face their toughest times ahead.


 

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Like all recession, sales will be down; and only luxury and essential business will survive. Food import companies and those that indirectly involved with it will thrive. Because according to behavioural finance, recession is commonly associated with price increase and therefore it is the natural tendency of shoppers to buy extra; and during recession time, food is vital for survival. This industry can only be affected by any supply chain issues, possible, but rare. Most restaurants will see the end of their journey; while luxury restaurants that attract idiotic billionaires with gold plated meat may continue a little longer. Most retail businesses will see the end of their journey. If the deaths due to pandemic increases in the region, then we will see the tourism sector closing; otherwise, as tourism is considered as the most important sector by the government, we will see the tourism sector surviving with lesser workforce.


Considering blue-collar workers, there are 2 scenarios : -

  • If the death rate due to virus increases, then we will see the majority of the workforce sent back to their home countries. Like 2020, all construction may be halted due to COVID-19.

  • Otherwise, we will see lesser employees being terminated from work. Since most countries in the region cannot survive without a new tourist-attracting-construction every year, construction workers will be required. But as the income of the developers reduces and most contractors face a chance of bankruptcy, some of the construction workers may be sent home. The same applies for all the workers in raw materials manufacturing and sales. Only government owned construction companies can survive this recession as they have the blessing of the Arab Royals.

People who have built their career with certifications (those people with career course degree, online degrees and other non-essential certifications ) will have to prove their worth. They may be required to accomplish arduous tasks and deadlines for the company they are working for. These jobs include Business Analyst, Digital Marketer, etc. These jobs are important only when the economy is growing, and if the company has good sales; but during the recession, the main objective of the business owner is to survive. Therefore, these high salaried individuals may be asked to leave. If you are considered irreplaceable in your company, you will survive. Otherwise, you will just be an unnecessary expense for the company.

 

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Expats with families will have to make a tough decision to send their families back to their home countries. This not only reduces expenses, but also guarantees security in cases of a conflict in the region. Having your family and things sent back home will help you. Companies that are associated to export will have a sudden increase in revenue as most of the people will try to leave the country with their things as they lose their jobs. During times of crisis, airline tickets will be very expensive and scarce. During the pandemic, we saw a similar situation where airline tickets were issued only with the permission of the government (Vande Bharat Mission 2020). School employees will see massive layoffs as most of the schools in the Middle East cater to the children of the expat population. Teachers and staffs with higher salaries will be removed first. Universities may remain unaffected as they function with government funds.


As usual, since there is no employee protection in the region, you may be asked to continue working for a lesser salary. For example, if there are 4 employees in the same department, 2 maybe asked to leave and the other 2 will have to work double for lesser salary. Freelancers will see lesser work opportunities. Overall, the business in the region will come to a standstill.


What I believe

To understand the impact of a recession, I will share a personal life experience; the one that I personally saw during the 2008-2010 GFC: -

  • Most company owners and CEO in the region left the country with whatever they had and could take with them. It was total confusion amongst the employees during those times. On paper, the company existed, but the management went absconding in most cases. As per the diabolic Kafala system, labourers did not get their passports. This caused mass panic as most labourers where left stranded in the country with no income, shelter and food. Most employees were not paid pending salaries and there was no severance/indemnity pay as well.

  • Most of them (low income labourers) had to use their savings that were kept aside for their children's marriage, home construction, and retirement. Many organisations helped these workers to repatriate them back to their home countries. While most unmarried/bachelor left the country, many old age workers that had lost their entire life's savings (~30-50 years' worth of savings) committed suicide in masses; at their labour camps. Suicides were not restricted to just the workers, it was prevalent in the middle-class people as well; most of them were because of the non-payment of dues and losses.

  • Most families that couldn't afford to send their things back to their home country had to leave their old lives behind. People that were with my family on the flight back home were just having their education document and clothes in their bags. People had to wait in queue for days for air tickets. Many families used to live in their cars; while some airports were full with bachelor migrant workers. Wherever you look in the airport, people were crying. There was a shortage of everything, and most people could not afford food and water. The only positive thing was that - crime rate during those days was very low among the working and middle-class people.

  • During this time of pain,the mass panic, and confusion, many rich fraudsters took loans worth millions (personal loans) and left the country without repayment. The road to the airports was filled with abandoned luxury cars (mostly taken using loans). This huge influx of abandoned cars created large luxury junkyards in many countries in the region. You can see most of them on YouTube channels. These fraudsters caused huge financial pain to these countries and also impacted relief efforts to the people stranded in the region.


 

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At least during the 2008 crisis, most white-collar employees had the luxury of resigning themselves or see their termination letters on their office desks; and have a notice period of 15-30 days. But today, we are seeing employees being fired from work on video calls, emails and WhatsApp. During the COVID-19 crisis, a major airline company in the Middle East fired its employees in the most humiliating way possible. They were given their termination letters in a prison like atmosphere with armed guards and asked to leave using the back door. It was similar to the way our human body absorbs the essential minerals from the food and then excretes it using its back door. All the high ranking and highly paid employees had massive debts that could not be repaid in their lifetime without a job. Without their only source of income, pilots and air hostess committed mass suicides from windows and rooftops.


Unlike 2008 recession, that caught the world by surprise, now the recession is global and well known; and it is also very slow. It has already been declared by the World Bank and other esteemed organisations that one-third of the world will experience this new recession. Considering that most Arab nations have achieved the developed-nation status only by using oil wealth and not by using any foundational sectors like agriculture or manufacturing; therefore, we may see its decline at a rapid rate. When these Arab countries were rich in income from oil, most of them invested in terrorism or in proxy wars. Therefore, when times are bad, we may see a resurgence of terrorism in these areas; as desperate people do desperate things to survive. As mentioned in my previous article, the people of Pakistan are currently experiencing the same. In financial terms, we can consider this as a return of their investments.


 

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The current crisis that we are about to face is not just a recession; it is already termed a poly-crisis (Multiple crisis coming together at once). We have a pandemic, war, recession and environmental catastrophes all coming together. Therefore, we have to learn the lessons from the Gulf War, 2020 Pandemic Lockdown, 2022 floods, and 2008 financial crisis; and be prepared to apply what we have learned all at once to ensure survival. Tech companies are laying off people from work at a very rapid rate using stupid excuses. Excuses such as over-hiring people during the pandemic and company restructuring issues. I believe this is done to reduce their expenses and to not cause any panic that could harm the stock market. While most people in the developed nations are distracted by sporting events and political drama, the rich and ruling class people are preparing for what is coming. They are preparing financially and physically. Financially, the rich are buying up farmland and property while those in the western world are buying nuclear bunkers and underground safe-houses. Gold and other precious metals are being bought at a rate never seen before.


Most expats in the Middle East consider themselves living in a fantasy land; living with a belief that everything will remain normal forever. Any news or fact that questions this mindset is neglected or discarded as false information and a hoax. The media and the governments in these countries support this behaviour because it is good for their economy and their reputation. In psychology, it is called "the normalcy bias". It is a fact that these countries don't offer citizenships; therefore, you will have to leave these countries one day. The Arab countries are now becoming the rich tourist attraction destination. Even though it is marketed as a tax-free country, there are invisible taxes; the increasing expenses and fees are the taxes. This is preventing them from generating any savings. And, considering most expats don't have enough savings now as they did in 2008, their return to their home countries will be chaotic.


 

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Let me make it very clear- " The days of making easy money are over". Those regular days where we study, have a job, make a family, earn big, retire early, and receive pension for the rest of the life; those days are gone. I termed it as "easy", because it was predictable, people knew what to do and when to do things, and the results were predetermined.


Today, it's all different (or to be safe, we can say it is changing rapidly); as it is the age of "stupid" money. Nowadays, people with no education background are earning 100x money more than those with proper education, skilled workers are shunned by businesses, people are employed based on use-and-throw policy, sales are based on deceit and the most sad thing of all is = people are loosing morality. There are even reports of expat underage school girls in some of the Middle Eastern countries skipping schools to become Instagram celebrities, prostitutes and escorts (without the knowledge of their parents). While all these things did happen in the past, now it is becoming the new normal. Our entire society is at a saturation point; therefore, now it is the survival of the best. And with a worldwide recession being confirmed by the World Bank and IMF, and other crisis on the way, the question is " Do you have what it takes to survive and are you prepared?".

 

The Middle East is a fantastic place. There is no doubt about it. Good times and bad times are part of the life cycle. Therefore, if a recession hits the Arab countries, it will happen within the next 12-24 months. It will be slow and unpublicized. This recession may have other crises along with it. There is a possibility of the resurgence of terrorism in the region; especially in countries that were once considered as safe. The current dollar based global financial system is ending and we all are in a transition phase to a new global system. Your basic human right will get curbed day by day as the crisis unfolds one by one. As I mentioned earlier, it is a poly-crisis; therefore, governments will also be facing crises. Therefore, your governments may not be able to help its citizen that are living abroad. Gaining skills and becoming financially safe can make this recession the best time you will ever have. While most of the people are negligent, there is still time for you to prepare in the best way possible.


During 2008 - 10, my family was lucky to recognize the coming recession and prepare accordingly. The expats in this region can never become citizens; and therefore will have to return to their home country at some point of time in their life. To understand when the recession will come, here is a trick - If you see the price of electronics and other non-essential items reducing while the price of food and essentials increasing, then recession is just 1-2 months away.


Therefore, the ultimate question is - " Do you want to return safe and prepared, or do you want to return miserable and begin your lives all over again?". The choice is always yours. Try to always remember - the strong survive but the prepared thrive.


In the upcoming articles, I will explore how the world governments plans to tackle the rising unemployment, climate change and the coming societal collapse.



 

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NOTE: This article does not intend to malign or disrespect any person on gender, orientation, color, profession, or nationality. This article does not intend to cause fear or anxiety to its readers. Any personal resemblances are purely coincidental. All pictures and GIFs shown are for illustration purpose only. This article does not intend to dissuade or advice any investors.

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