Opinion



February 3, 2019,   4:43 PM

Will The Middle East Become An Economic Bridge In 2019?

Rudolph Lohmeyer

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The global dynamics of 2019 will in many ways center on developments in the Middle East. Its geographic position at the meeting point of three continents has long positioned the region as a crossroads of global commerce—a bridge of international trade connecting Asia, Africa and Europe. Leveraging this geographic position to become a value-adding synapse in global value chains is central to the grand strategies of many key countries in the region. Over the next 12 months many of the assumptions that undergird these strategies will be severely tested—first and foremost by trade.

A.T. Kearney anticipates that the China-US trade war will intensify, even if the first-order impact of Donald Trump’s hardline approach to the bilateral trade deficit with China subsides. The second-order effects of global geopolitical uncertainty, financial volatility and a darkening global economic outlook have already begun to take on a life of their own, as reflected in the recent IMF January update to its World Economic Outlook. The IMF reduced the growth outlook for the Middle East in significant part due to China-US trade dynamics. This understates the downside risk of a period of more extreme tension between the world’s two largest economies and its implication for global demand and—as a result—oil prices.

To understand the implications of these global dynamics for the Middle East, it is important to consider the underlying drivers of these near-term trade dynamics.

Shifting global economic order

The global geo-economic order has entered a period of deep and unstable transition from the relatively stable, international system that had held sway since the end of the Cold War. We are now in the midst of the emergence of a new multi-polar structure. This is the result of both the rise of new great powers, and the increasing centrality of technological innovation as the central front of competition between them. An immediate consequence is the growing fragmentation of the global economic and trading system, and increasingly contested access to the frontier of innovation.

Rising socio-economic polarization and political populism

Despite the remarkable growth that the most recent phase of globalization generated, within many countries it also resulted in dramatic and ultimately destabilizing increases in economic inequality. The resulting frustration has led to a powerful surge in political populism and economic nationalism. Around the world, in countries at virtually all levels of economic development, these cleavages have contributed to social polarization, the declining trust of institutions (including but not limited to government), and the erosion of interpersonal trust—or “social capital”.

For the Middle East, these simultaneous tectonic shifts will be of profound strategic importance in 2019 and beyond. The GCC countries, for example, to the extent China-US bilateral divisions deepen, must increasingly balance their longstanding security relationship with the US with their rapidly deepening economic ties to China. There will be important opportunities for these countries to play a crucial role as an economic bridge between the world’s leading economies by smoothly brokering the flows between them.

However, there is also a risk that the region will once again become an unstable geopolitical fault line in 2019. A.T. Kearney anticipates that the Xi-Putin relationship will deepen this year given the strategic alignment and complementary capabilities of China and Russia—including with respect to energy.  For the countries of the GCC, this strengthening relationship adds new complexity to an already challenging landscape. Given Russia’s ascendant influence in the Middle East, China’s growing economic interest in the reconstruction of Syria and the support of both China and Russia for Iran despite its destabilizing strategic orientation, the risk of the Middle East becoming a zone of great power conflict is rising.

Accelerating the remarkable transformation efforts underway in the Middle East requires increasing the stability of the region and starting work on the reconstruction of its most fragile states. As a result, the region needs to make a proactive effort to shape the incentives and behaviors of the key global actors in ways that support its role as a bridge. This includes making it clear that the advance of regional stability, reform and progress is in the interest, not only of the countries of the Middle East, but also of the great powers vying for influence within it.

Rudolph Lohmeyer leads the National Transformations Institute, the Dubai-based platform of A.T. Kearney’s Global Business Policy Council.

 



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