International Economics Arab Country

Question: Discuss about theInternational Economicsfor Arab Country. Answer: Kuwait is a small country in the Middle East. As per the data of World Bank, this country holds the fourth position among the richest countries of the world in per capita income. Its economy is petroleum based. The Kuwaiti diner, the currency of Kuwait is highest-valued currency unit in the world. In the Gulf Cooperation Council (GCC), Kuwait is the second richest country after Qatar in per capita income (Al-Ebraheem 2016). This essay discusses the cost of living of Kuwait and the economic implications of it. Kuwait is the first Arab country in the Gulf that established an elected parliament. It has a constitutional monarchy, which is ruled by al-Sabah Empire. This country is a leading nation in GCC financial industry. The main economic focus is on the energies, than on other sectors. The major industries of Kuwait are petroleum based, and other industries are shipbuilding and repair, food processing, cement, desalination and supply of construction materials (Alhamad 2014). The GDP and GDP per capita of the country contributes majorly in the determination of cost of living of that country. Figure 1: GDP of Kuwait (Source: tradingeconomics.com 2017) The GDP of Kuwait has fluctuated a lot in the past 10 years. It reached highest to $174.16 billion in 2012-2013, while it dropped to $114.04 billion in 2015 (World Bank 2017). Figure 2: GDP per capita of Kuwait (Source: tradingeconomics.com 2017) The GDP per capita has declined significantly for the country in the last 10 years. It was highest during 2007 at $48901.54 while it dropped to $35888.6 in 2015 (World Bank 2017). However, this GDP per capita of Kuwait equals to 284% of the average GDP per capita of the world. Among the 282 countries, Kuwait is the 134th costliest country for living. The cost of living index is calculated on the basis of a list of items that are purchased daily. For example, as Kuwait is a Muslim country, alcohol is not available easily and widely. Hence, in the group of alcohol and tobacco, Kuwait is the last country. Kuwait has a cost of living that is 1.41% higher than that in USA, while the housing rent is 6.92% lower than in USA. In the city, the cost of living is 8.36% less than that in New York City. An average monthly expense, without rent, for an individual is 238.88 KD and for a family of four is 894.27 KD (Expatfocus.com 2016). As per the data, maximum expenses occur at the market, 41.3%, while the next major component is the housing rent, comprising of 27.8%. Sports and Leisure constitute 10.8% of the total cost of living. Hence, it can be derived that, the markets and housing are little bit over priced in Kuwait. The general lack of taxation also triggers the costs of many commodities to go up, influencing the cost of living (Welcome2Kuwait 2017). The cost of living is also dependent on the lifestyle that people choose. Kuwait has options for moderate living as well as high standard living. For example, a normal combo meal in McDonalds cost around 1.2KD or around 4.2 USD. A hot chocolate drink in Starbucks costs around 1.5KD or 3.1 USD. Hence, the prices are 60% more in Kuwait than in U.S.A. A small restaurant meal costs around 0.750-1 KD. Taxi fare usually costs between 0.750 and 2 KD, depending on the distance (Expatfocus.com 2016). Figure 3: Share of income spent, by sectors (Source: Expatfocus.com 2016) Cost of living refers to the money required to maintain a definite level of living, and it includes expenses like rent of housing, food, health care, and taxes. The cost of living index is used to compare the expenses of two cities. Wage of the people is the main determining factor in this, as this is measured against the cost needed to sustain a basic standard of living across a specific geographic region (Balk 2012). Cost of living index is a price index, which estimates the relative expense for living over time or over regions. This index evaluates the variances among the prices of goods and services and allows the substitution with other goods as the prices differ (Baye and Black 2012). The cost of living index varies for different items in different region. It has a range of values, and the actual value indicates its position within that range, and determines if the value is higher or lower (Fre, Grosskopf and Russell 2012). For example, in Kuwait, the rent for a 3BHK apartment is 588.33 KD and the range is 450.00-800.00. As the GDP per capita is very high compared to other countries, the wages of the workers are higher too. Consequently, people with higher wages in Kuwait can afford a high standard of living. Therefore, the cost of living is moderate (Crystal 2016). There are some social and economic implications of Kuwaits cost of living. In 2016, the inflation of Kuwait was 2.7% (CPI). The trend in inflation rate is going upwards. However, the wages of people are not increasing accordingly. Therefore, the higher cost of living is affecting the middle class people of Kuwait badly. An increasing number of people now try to avail the discounts and deals to avoid the pressure of high cost of living, along with a high level of inflation. The basic commodity prices like food items increased about 2.7% annually and housing prices also increased by 4.4% (Bazoobandi 2013). It is evident that the cost of living has increased beyond the means of the middle class group of the country. According to the data of Central statistical Bureau of the Gulf States, Kuwaits cost of living is highest among the Gulf countries and the reason behind the rise of the rates was the increase in GDP per capita, inflation and high purchasing power of the high income group. Fo r some commodities, the price in Kuwait is almost double the price in any other Gulf countries. For example, the price of a gallon of cooking oil in Kuwait is 1.37 KD, while in Bahrain it is only 714 fils (Al-Ebraheem 2016). Online businesses are making entry in the Kuwaits market. The prices in the online market are relatively cheaper. Hence, the online markets are becoming popular among the people. However, some times, the online dealers sell imported products at a higher price and some people do not mind to spend much for branded imported products (Alhamad 2014). The currency of Kuwait is one of the worlds strongest currencies. It gives the residents an advantage while travelling abroad. However, at the home country, he higher cost of living does not match the rise in wages, and hence, this is causing dissatisfaction among the residents. It could lead to brain drain, since skilled workers would look for higher wages and lower cost of living in other countries (Omar 2014). Furthermore, the governments decision to increase the fuel prices would hit the cost of living of the country. An increase in the fuel prices would lead to an increase in the prices of many commodities, especially food and grocery items, that includes transportation costs. That would again affect the purchasing power of the residents. The general cost of public transport would increase too (Arab Times 2016). From the above discussion, it can be stated that, although Kuwait has a strong currency and the growth of the country is going upwards, there needs to be some policies to control the cost of living in the country. As the cost of living is quite higher, the purchasing power of the people needs to be increased. By considering the inflation and GDP, Kuwait must formulate policies for increasing the wages of the residents (Oxford Business Group 2016). It should also control the prices of fuel. Along with that, the government should also think about price control and provide subsidies to the suppliers so that the consumers are not burdened with high price. The housing prices needs to be controlled too. If the cost of living is not controlled, there will be an increase in the migration of skilled workers to other countries (Crystal 2016). From the discussion above, it can be concluded that, despite being one of the richest countries of the GCC and in the world, Kuwait has a problem of higher cost of living. It has a very high GDP and GDP per capita, and an upward rising inflation rate, but peoples purchasing power have not increased according to rising prices in the country. Therefore, the residents, especially the middle income group has been hit hard by the higher cost of living. Hence, the government must design policies for controlling the cost of living so that the issue of brain drain is reduced. References: Al-Ebraheem, H.A., 2016.Kuwait and the Gulf: small states and the international system. Routledge. Alhamad, H.S., 2014. The High Cost of Living in Saudi Arabia: Growth and Inflation in a Macroeconomic Perspective.Inquiries Journal,6(09). Arab Times, 2016. Fuel price hike to affect economic situation, standard of living: experts. [online] Available at: https://www.arabtimesonline.com/news/fuel-price-hike-affect-economic-situation-standard-living-experts/ [Accessed 1 May 2017]. Balk, B.M., 2012.Price and quantity index numbers: models for measuring aggregate change and difference. Cambridge University Press. Baye, M.R. and Black, D.A., 2012.Consumer behavior, cost of living measures, and the income tax(Vol. 276). Springer Science Business Media. 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