Eighth Arab Strategy Forum Releases Report on Global Political and Economic Trends in 2016 in Collaboration with Foreign Affairs Magazine

Dubai-UAE: December 15, 2015 - In collaboration with the Foreign Affairs magazine, the eighth Arab Strategy Forum, Part of Mohammed Bin Rashid Global Initiatives, has compiled a report forecasting political and economic trends in 2016 through a comprehensive analysis of current global events. Offering a glimpse of the future, the report recommends solutions that can be adopted to tackle the geopolitical and economic challenges that are likely to impact world strategies in 2016.

Among its most dominant observations on the state of the world in 2016, the report forecasts the potential for a new proxy war in the Middle East with the current turbulences likely to escalate well into 2016. Analyzing the war in Yemen, the report reveals that the Coalition States can claim to have achieved their combat objectives. However, a durable settlement would require external diplomatic intervention as well as a serious commitment by local parties.

The report highlights the advancement of Daesh in recent years and its transformation from a local faction into a leading force globally. The terror group now controls a significant portion of eastern Syria and western Iraq along with outposts elsewhere in the region, has a steady inflow of foreign recruits and diversified sources of income, and has recently demonstrated its ability and willingness to attack Western targets of all kinds. The report explains that the brutality and aggressiveness of Daesh has triggered opposition from all sides. While stating that enemies of IS have divergent interests and are unlikely to band together strongly enough to destroy the group, the report concurs that they could regardless register continued success in containing its advances and pushing it back into an ever smaller area.

As for Libya, the report reveals that its instability will make regional problems even harder to resolve. Borders are highly permeable, while the jihadis in Libya have no serious natural predators and may export violence and migrants to Europe heightening tensions in that region.

On the Sinai Peninsula, the report indicates it will prove a nuisance but not a mortal threat to the Egyptian government. As for Syria, the report forecasts that Assad will remain in power. The Russians and Iranians are committed to supporting him and the Syrian opposition is not strong enough to achieve its objectives.

In an analysis of the situation in Iraq, the report reveals that Iraq will remain united in name only as Daesh controls much of the West of the country and the Kurds are largely autonomous in the North.

Entitled ‘The State of the Arab World Economy in 2016’, the report clearly indicates that low oil prices, persistent failure to diversify economies, civil wars and their spillover effects, and less than average educational opportunities all suggest the Arab world's economic problems are likely to compound in 2016 rather than improve significantly. The Gulf countries, however, will do better than their neighbors elsewhere in the region. Over a slightly more extended timeframe, the answer will depend on where oil prices go. If oil remains at US$45 bbl, the region will be capital-short. On the other hand, if the price tops US$70 bbl over an extended period, the energy exporting countries will build up a US$6 trillion treasure chest over the next 10-15 years.  If oil returns to US$100 bbl, that number goes up to US$9 trillion. Determined leaders can buy their way out of a lot of problems with that kind of money.

GCC countries will enjoy better budget balances but face some political turbulence if there is a reduction or removal of subsidies and/or implementation of taxes.

The impact of reducing or eliminating subsidies and increasing taxes will depend on whether such policies are indeed implemented, and on how significant and quick the changes are. The UAE has successfully implemented some rationalization of energy prices for the consumer with no difficulties, but it is not yet clear whether such progress will be replicated in other countries. Should such policies spread across the region, the results might eventually include better budget balances, but some difficulties.  

FDI flows to the wider Arab region will diminish as a result of the decrease in oil prices but this will have a minimum effect on the countries that enjoy diversification of the economy such as the United Arab Emirates, Qatar and the wider GCC region. 

The report highlights the major challenges the region will face economically as a result of the large displaced refugee population, especially Jordan, Lebanon, and Kurdistan and potentially Tunisia, Egypt, Turkey, and Iran.  

Analyzing the economic state of Egypt, the report forecasts a slower growth given the increasing challenges with regard to tourism. 

The report expects a slowdown of Chinese investments in foreign energy resources during 2016, both for domestic reasons and because lower oil prices will make fewer oil projects attractive. But the scarcity of good domestic investment opportunities inside China might lead to capital outflows, some of which will presumably end up in the Middle East. Private overseas Chinese capital may begin to flow to the Middle East as also to other parts of the world, and luxury real estate - both commercial and residential - could be a prime target of these investments.

Under the segment ‘The Political State of the World in 2016’, the report forecasts that the Middle East region, Ukraine, South and East China Seas will continue to be the key conflict areas and geopolitical hotspots. Showcasing various scenarios for the Ukranian crisis, the report suggests that this conflict will remain ‘frozen’ in 2016.

On the other hand, the report predicts that relations between the US and Western powers with Russia will continue to deteriorate but not escalate dramatically. While Ukraine has moved out of the front pages, the future of relations between the two powers remains unclear.  

On the Iranian front, the report reveals that Iran will try to comply with the terms of the recent nuclear deal but without opening up to the world at least through 2016, given the local political divisions within Iran.

As for Europe, the report notices that the increasing attacks by terrorist groups in Europe will produce improved counter-terrorism and increased nativism.
On the US presidential elections, the report forecasts that Hillary Clinton will win and she will continue the same foreign policy approach as the incumbent government today, but will most likely be less “allergic” to military interventions. 

The global economy in 2016 is highlighted in the report based on the current projections of IMF that has revealed a moderate global growth of 3.6 percent for 2016, with a modest growth in Europe, even while emerging economies and the US grow more slowly. 

The report indicates that the US Federal Reserve Bank might increase the interest rates by 50-100 basis points in 2016 before taking decisions on future steps. This increase depends on the strength of the American economy and the rates of inflation. In the meantime, India will continue to be the bright spot while growth projections for the emerging markets as a whole are approximately 4.5% for 2016.

Analyzing the current and future outlook of Europe, the report reveals that it has all the ingredients for growth acceleration in 2016. But Europe is in political disarray, distracted by the prospect of a UK referendum on leaving the EU. The severe structural problems backed into the single currency are also likely to trigger much uncertainty and discourage investment.

Given the continuous slow growth in the global economy, the report predicts that oil prices are unlikely to shoot back up as high as they used to be in the past.

The report forecasts that the Chinese double-digit economic boom is over. However, China will emerge a much more active player in the Arctic region, continuing its ‘One Belt, One Road’ policy that has been designed to achieve economic integration throughout large swaths of Eurasia and Africa.