Khashoggi crisis highlights why investment in Asia is more productive than in the Middle East
Growing
Western political and corporate reluctance to be associated with Saudi Arabia
in the wake of the suspected killing of journalist Jamal Khashoggi spotlights
fundamentally different investment strategies and environments in the bulk of
Asia and the oil-rich Gulf states, the continent’s most western flank.
The
Khashoggi crisis highlighted the fact that much of investment in the Gulf,
irrespective of whether it is domestic, Western or Chinese, comes from
financial, technology and other service industries, the arms industry or Gulf
governments. It is focused on services, infrastructure or enhancing the state’s
capacities rather than on manufacturing, industrial development, and the
nurturing of an independent private sector.
The
crisis has put on display the risks Gulf governments run by adopting policies
that significantly tarnish their international reputations. Technology, media,
financial and other services industries as well as various European ministers
and the US Treasury Secretary have cancelled, in the wake of Mr. Khashoggi’s
disappearance and likely killing while visiting the Saudi consulate in
Istanbul, their participation in Davos in the Desert, a high-profile investors’
conference in Riyadh later this month.
By
contrast, the military industry, with US President Donald J. Trump’s
encouragement, has proven so far less worried about reputational damage.
Sponsored
by Saudi Crown Prince Mohammed bin Salman, who is suspected of being
responsible for Mr. Khashoggi’s likely murder, the conference was intended to
attract investment in his Vision 2030 plan to reform and diversify the Saudi
economy.
In
highlighting differences in investment strategies in the Middle East and the
rest of Asia, the fallout of Mr. Khashoggi’s disappearance goes beyond the
parameters of a single incident. It suggests that foreign investment must be
embedded in broader social and economic policies as well as an environment that
promises stability to ensure that it is productive, contributes to sustainable
growth, and benefits broad segments of the population.
In
contrast to the Gulf where, with the exception of state-run airlines and DP
World, Dubai’s global port operator, the bulk of investment is portfolios
managed by sovereign wealth funds, trophies or investment designed to enhance a
country’s international prestige and soft power, major Asian nations like China
and India have used investment to lift hundreds of millions of people out of
poverty, foster a substantial middle class, and create an industrial base.
To
be sure, with small populations, Gulf states are more likely to ensure
sustainability in services and oil and gas derivatives rather than in
manufacturing and industry. Nonetheless, that too requires enabling policies
and an education system that encourages critical thinking and the freedom to
question, allow one’s mind to roam without fear of repercussion, and grants
free, unfettered access to information – categories that are becoming
increasingly rare in a part of the world in which freedoms are severely
curtailed.
China’s
US$1 trillion, infrastructure-driven Belt and Road initiative may be the Asian
exception that would come closest to some of the Gulf’s soft power investments.
Yet, even so, the Belt and Road initiative, designed to alleviate domestic over
capacity by state-owned companies that are not beholden to shareholders’ short
term demands and/or geo-political gain, contributes to productive economic
growth in the People’s Republic itself.
Asian
nations, moreover, have been able to manage investors’ expectations in an
environment of relative political stability. By contrast, Saudi Arabia damaged
confidence in its ability to reform and diversify its oil-based economy when
after repeated
delays it suspended indefinitely plans to list five percent of its national oil
company, Saudi Arabian Oil Company or Aramco, in what would have
been the world’s largest ever initial public offering.
The
Khashoggi crisis and the Aramco delay followed a series of political initiatives
for which there was little equivalent in the rest of Asia. These included the Saudi-United
Arab Emirates military campaign in Yemen causing the world’s worst post-World
War Two humanitarian crisis; the 16-month-old diplomatic and
economic embargo of Qatar by Saudi Arabia, the UAE, Bahrain and Egypt;
the detention
and failed effort to force Lebanese Prime Minister Saad Hariri to resign;
and the diplomatic Saudi
spat with Canada in response to a tweet criticizing the kingdom’s
human rights record. As a result, foreign
direct investment in Saudi Arabia last year plunged to a 14-year low.
All
of this is not to say that the rest of Asia does not have its own questionable
policies such as Chinese claims in the South China Sea or the Pakistani-Indian
feud, and questionable business practices such as China’s alleged industrial
espionage. However, with the exception of China’s
massive repression of Turkic Muslims in its north-western province of Xinjiang,
none of these are likely to fundamentally undermine investor confidence, derail
existing social and economic polices that have produced results or produce
situations in which avoidance of reputational damage becomes a priority.
At
the bottom line, China is no less autocratic than the Gulf states, while Hindu
nationalism in India fits a global trend towards populism and
illiberal democracy. Nevertheless, what differentiates much of Asia from the
Gulf and accounts for its economic success are policies that ensure a
relatively stable environment and are focussed on social and economic
enhancement rather than primarily on regime survival. That may be the lesson
for Gulf rulers.
A
version of this story was first published by Syndication Bureau
Dr.
James M. Dorsey is a senior fellow at the S. Rajaratnam School of International
Studies, co-director of the University of Würzburg’s Institute for Fan Culture,
and co-host of the New Books in Middle Eastern Studies podcast.
James is the author of The Turbulent World
of Middle East Soccer blog, a book with the same title and a co-authored
volume, Comparative Political Transitions between Southeast Asia and
the Middle East and North Africa as well as Shifting
Sands, Essays on Sports and Politics in the Middle East and North Africa
and just published China
and the Middle East: Venturing into the Maelstrom
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