JMD on Firstpost: Economic reform in the Gulf: Who benefits, really?
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For Gulf leaders, long-overdue economic reforms were never going to be
easy.
Leaders like the crown princes of Saudi Arabia and the United Arab
Emirates, Mohammed bin Salman and Mohammed bin Zayed, quickly discovered that
copying China’s model of economic growth while tightening political control was
easier said than done. They realised that rewriting social contracts funded by
oil wealth was more difficult because Gulf Arabs had far more to lose than the
average Chinese. The Gulf states’ social contracts had worked in ways China’s
welfare programmes had not. The Gulf’s rentier state’s bargain—surrender of
political and social rights for cradle-to-grave welfare—had produced a win-win
situation for the longest time.
ile image of Saudi Arabia Crown Prince Mohammed bin Salman. AP
Moreover, Gulf leaders, struggling with mounting criticism of the
Saudi-UAE-led war in Yemen and the fall-out of the killing of journalist Jamal
Khashoggi, also lacked the political and economic clout that allowed China to
largely silence or marginalise critics of its crackdown on Turkic Muslims in
the troubled northwestern province of Xinjiang.
The absence of a functioning welfare-based social contract in China
allowed the government to powereconomic
growth, lift millions out of poverty, and provide public goods without forcing
ordinary citizens to suffer pain. As a result, China was able to push through
with economic reforms without having to worry that reduced welfare benefits
would spark a public backlash and potentially threaten the regime.
Three years into Mohammed bin Salman’s Vision 2030 blueprint for
diversification of the economy, Saudi businesses and consumers complain that
they are feeling the pinch of utility price hikes and a recently introduced
five per cent value-added tax with little confidence that the government will
stay the course to ensure promised long-term benefit.
The government’s commitment to cutting costs has been further called
into question by annual handouts worth billions of dollars since the
announcement of the reforms and unilateral rewriting of the social contract to
cushion the impact of rising costs and quash criticism.
In contrast to China, investment in the Gulf, whether it is domestic or
foreign, comes from financial, technology and other services sector, the arms
industry or governments. It is focused on services, infrastructure or enhancing
the state’s capacities rather than on manufacturing, industrial development and
the nurturing of private sector.
With the exception of national oil companies, some state-run airlines
and petrochemical companies, the bulk of Gulf investment is portfolios managed
by sovereign wealth funds, trophies or investment designed to enhance a
country’s prestige and soft power.
By contrast, Asian economies such as China and India have used
investment to fight 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.
China’s $1 trillion Belt and Road initiative may be the Asian exception
that would come closest to some of the Gulf’s soft-power investments. Yet, the BRI, designed to
alleviate domestic overcapacity by state-owned firms that are not beholden to
shareholders’ short-term demands and/or geo-political gain, contributes to
China’s domestic growth.
Asian nations have been able to manage investors’ expectations in an
environment of relative political stability. By contrast, Saudi Arabia damaged
confidence in its ability to diversify its oil-based economy when after
repeated delays it suspended plans to list five per cent of its national oil
company, Saudi Arabian Oil Company, or Aramco, in what would have been the
world’s largest initial public offering.
To be sure, China is no less autocratic than the Gulf states, while
Hindu nationalism in India fits a global trend towards civilisationalism,
populism and illiberal democracy. What differentiates much of Asia from the
Gulf and accounts for its economic success are policies that ensure a
relatively stable environment. These policies are focused on social and
economic enhancement rather than primarily on regime survival. That may be
Asia’s lesson for Gulf rulers.
(James M Dorsey is a senior fellow at Nanyang
Technological University’s S. Rajaratnam School of International Studies, adjunct
senior research fellow at the National University of Singapore’s Middle East
Institute and co-director of the University of Wuerzburg’s Institute of Fan
Culture)
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