Content uploaded by Martin Hvidt
Author content
All content in this area was uploaded by Martin Hvidt on Nov 17, 2015
Content may be subject to copyright.
Middle East Institute
is collaborating with JSTOR to digitize, preserve and extend access to
Middle East Journal.
http://www.jstor.org
Economic and Institutional Reforms in the Arab Gulf Countries
Author(s): Martin Hvidt
Source:
Middle East Journal,
Vol. 65, No. 1 (Winter 2011), pp. 85-102
Published by: Middle East Institute
Stable URL: http://www.jstor.org/stable/23012095
Accessed: 17-11-2015 05:47 UTC
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/
info/about/policies/terms.jsp
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content
in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For more information about JSTOR, please contact support@jstor.org.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
Economic and Institutional Reforms in the Arab
Gulf Countries
Martin Hvidt
Over the last decades, Dubai has applied an economic developmental model which
is strongly pro-business, emphasizes market liberalism and economic openness, and
embraces globalization, while at the same time refraining from challenging the tra
ditional neo-patrimonial leadership structure in the country.
As such, the "Dubai
model" has so
far been distinctly differentfrom
economic models applied in the other
GCC countries. However, judging from official
statements,
development projects un
der implementation, and the effort currently expended in creating economic assets in
the other GCC states, these states seem to be embracing the "Dubai model" of
devel
opment. This article will analyze the claim that
the "Dubai model" is displacing the
rentier state model as the
general developmental model among the Gulf
countries.
If one takes a closer look at the
development projects that have recently been completed
or gotten under way in the Gulf countries, one finds that
they
are spitting images of proj
ects executed in Dubai. Each emirate or sultanate strives to establish a skyline in glass,
artificial islands with luxury homes, marinas, golf courses, and themed shopping malls.1
In addition, significant investments are being made to establish economic activities with
the aim of attracting foreign firms and individual investors: financial institutions, office
facilities, free zones, airports, harbors, and, more than anything, tourism. Due to high
levels of government spending, such construction and investment activities seem to be
continuing, albeit at a slower pace as a result of the current financial crisis.2
This uniform approach to development has led researchers and commentators to
claim that the other Gulf states imitate the "Dubai model" of development.3 Official
statements and not least the content of current development plans published by the
Martin Hvidt is an Associate Professor at the Center for Contemporary Middle East Studies, University of
Southern Denmark. He would like to thank the participants at the Geo-Economics of the Gulf workshop in
Waterloo, Canada and the anonymous readers at The Middle East Journal for their useful comments on this
article. He would also like to thank the Gulf Research Center in Dubai for hosting him during his research,
and the Danish Social Science Research Council for
providing funding. This article follows the arguments put
forward in "Public-Private Ties and Their Contribution to Development: The Case of Dubai," Middle Eastern
Studies, Vol. 43, No. 4 (2007), which presented a historical account of the economic development of Dubai and
analyzed the density and strength of the ties between the public and the private sector and "The Dubai Model:
An Outline of Key Development-Process Elements in Dubai," International Journal of Middle East Studies,
Vol. 41, No. 3 (2009), which defined the basic parameters of the development path followed by Dubai.
1. This article delimits itself to the study of the six countries in the Gulf Cooperation Council
(GCC): Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
2. International Monetary Fund (IMF), Regional Economic Outlook: Middle East and Central Asia
(Washington, DC: IMF, 2009), p. 5.
3. See, for example, Meena Janardhan, "Diversification Follows the 'Copycat' Route," lnterpress
Service News Agency, November 28, 2007; Seth Sherwood, "Is Qatar the Next Dubai?," The New York
Times, lune 4, 2006; "Nabil Ali A1 Yousuf: Catalyst of Change," TRENDS Magazine (March 2008), p.
160. A1 Yousuf points out that countries also imitate the administrative reforms initiated by Dubai.
MIDDLE EAST JOURNAL ★ VOLUME 65, NO. 1,
WINTER 2011
DOI: 10.3751/65.1.15
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
86 ★ MIDDLE EAST JOURNAL
other GCC countries certainly support this claim.4
According to The Institute of International Finance (IIF), the combined export
earnings of the Gulf Cooperation Council (GCC) countries was $ 1.5 trillion during the
period 2002-2006, which represented a doubling of the incomes compared to the pre
ceding five-year period.5 The Institute further estimated that approximately $ 1 trillion
was spent on imports (i.e., development projects and services) while the remaining ap
proximately $500 billion was saved. As such, the estimated total foreign assets owned
by the GCC countries rose to $ 1.6 trillion by year-end 2006.6 In addition to these public
funds, significant private funds are present in the region.7
The medium- and long-term effects of the global financial crisis are not easy to
predict. In a regional review, The Institute of International Finance writes that the GCC
countries are "relatively well-positioned to withstand the effects of the current global
credit crisis with little enduring damage."8 They furthermore state that
Overall the risks are containable given the ample resources of the region and strong
macroeconomic fundamentals. An ambitious investment program is currently under
way to expand capacity in [the] real estate, tourism, transportation, manufacturing, and
hydrocarbon sectors. These investments exceed $1 trillion for the next five years (about
the combined size of the GCC economies) even after assuming that half of the planned
projects will be cancelled or postponed due to the current global credit crunch.9
While oil prices and the volume of oil sold plunged in the latter part of 2008 and
early 2009, they both recovered quickly. With an average oil price of $62 per barrel in
2009 and expected average oil prices of
$76 per barrel in
2010 and $78 per barrel in
2011,
the GCC countries will certainly experience lower returns
from oil than during the peak
years of 2006-2008, but will still make a considerably higher income from oil than in
4. See, for example, Goverment of Bahrain, Our Vision. The Economic Vision 2030for Bahrain
(Manama: Bahrain Economic Development Board, 2008); Government of UAE, UAE Vision 2021:
United in Ambition and Determination (Abu Dhabi: Government of United Arab Emirates, 2010);
General Secretariat for Development Planning (GSDP), Qatar National Vision 2030, July 2008 ed.
(Doha: General Secretariat For Development Planning, 2008); Ministry of Information, The Seventh
Five-Year Plan (2006—2010) (Muscat: Government of Oman, 2006); Ministry of Economy and Plan
ning (MEP), Brief Report on the Ninth Development Plan (2010—2014) (Riyadh: Kingdom of Saudi
Arabia, Ministry of Economy and Planning, 2010); State of Kuwait, Five-Year Development Plan of
the State of Kuwait 2009/2010—2013/2014. A Draft General Framework (Kuwait City: The General
Secretariat of the Supreme Council for Planning and Development, 2009).
5. The Institute of International Finance (IIF), Tracking GCC Petrodollars: How and Where They
Are Being Invested around the World, Regional Briefing Gulf Cooperation Council (Washington, DC:
The Institute of International Finance, Inc., 2007), p. 1.
6. IIF, Tracking GCC Petrodollars, p. 2.
7. IIF, Record Oil Prices Fuel Major Expansion of Gulf Economies and Large Gains in Surplus Funds
— Foreign Assets Reach $1.8 Trillion, January 16, 2008 (Washington, DC: Institute of International Fi
nance, Inc., 2008).
8. IIF, Summary Appraisal: Gulf Cooperation Council Countries, November 6, 2008 (Washington,
DC: Institute of International Finance, Inc., 2008), p. 13. The IMF expresses the same understanding
of the situation in IMF Sees Spending by Middle Eastern Oil Exporters Softening Global Financial
Crisis Impact, Press Release No. 09/28, February, 2009 (Washington, DC: IMF, 2009).
9. IIF, Summary Appraisal: Gulf Cooperation Council Countries, p. 13.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
ECONOMIC AND INSTITUTIONAL REFORMS IN THE GCC ★ 87
the 1990s and the early part of the 21st century when the oil price averaged $20 per
barrel.10
So, despite the global financial crisis, the GCC countries can still be said to be
experiencing a financial boom. The International Monetary Fund (IMF) reported that
growth is picking up in the GCC countries in 2010 and that
they expect these countries
to improve their current account surplus by $50 billion from 2009 to 2011.11 Further
more, prices of construction have decreased drastically in comparison with 2008. En
gineering, procurement, and construction costs were reported to be up to 45% lower in
late 2009 compared with the peak of the market in July
2008, which provides the GCC
countries with considerable incentive to carry on with their investment programs.12
In comparison with
previous oil booms, the last one has taken a different
form.
In the
1970s, the small and relatively underdeveloped economies of the Gulf states had a limited
ability to incorporate and utilize substantial capital in a productive manner and thus placed
significant
amounts of so-called petrodollars passively in international
banks.13
The present
"boom" is characterized by the
region's increasing ability
to incorporate substantial invest
ments.
According to
one observer,
the
region is currently
characterized by "excellent macro
economic policies, strong
technocratic capacity, a vastly improved regulatory
environment,
a private
sector willing to both invest and innovate, and strong global links in services."14
Thus, the general picture is that there seems to be a renewed and strengthened at
tempt
to invest oil money in a manner that creates real economic assets. Current projects
within industry,
education, and service provision indicate that the states are employing
the funds to see through a real economic diversification process. In this way "develop
ment" seems once again to have entered the political agenda in the Gulf countries.
THE DUBAI MODEL
Dubai takes up a special position in the
development of the six GCC states. The emir
ate,
which is one of the seven emirates forming
the United Arab Emirates, has shown how it,
through
innovation, strategic
investment,
branding, and openness to globalization, has been
able to transform a backwater, oil-poor Arab city-state into an international metropolis.15
The main features of the Dubai development model have been described in a previ
ous article, "The Dubai Model: An Outline of Key Development-Process Components in
Dubai."16 In this article, I find that the Dubai model is an economic model which derives
its inspiration from Singapore and argue that it is based upon a combination of statism,
a private sector able and willing to engage in the development process, and not least a
deeply-rooted vision of "catching up" with its oil-rich neighbors and the "first world."
10. IMF, Regional Economic Outlook: Middle East and Central Asia (Oct 2010), World Eco
nomic and Financial Surveys (Washington, DC: IMF, 2010), p. 1. The average oil price in 2008 was
$99 per barrel according to the IIF, Update: Gulf Cooperation Council Countries, December 4, 2008
(Institute of International Finance, Inc., 2008), p. 2.
11. IMF, Regional Economic Outlook: Middle East and Central Asia (Oct 2010), p. 1.
12. Adal Mirza, "Construction Prices Offer Window of Opportunity in Oil and Gas Sector," Middle
East Economic Digest (MEED), No. 44, October 30-November 5 (2009).
13. Michael P. Todaro and Stephen C. Smith, Economic Development, 10th ed. (Harlow, England:
Pearson/Addison Wesly, 2009), p. 675.
14. Afshin Molavi, "The CEO Sheik," Newsweek, August 6, 2007, p. 18.
15. Martin Hvidt, "Public-Private Ties and Their Contribution to Development," p. 562.
16. Martin Hvidt, "The Dubai Model."
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
88 ★ MIDDLE EAST JOURNAL
At a more specific level, it builds on government-led development, a small but efficient
public sector, pro-business rules and regulations, a willingness to take risk, extensive use
of
foreign labor, and last but not least, reliance on the inflow of vast amounts of
foreign in
vestments, especially in the real estate and trade sectors. The model furthermore showed
the other GCC countries which types of international high-growth sectors (e.g., aviation,
tourism) could be emphasized as the backbone of the development process.
All the GCC states have launched development plans in which the
primary
aim is to
diversify
their
economies (i.e., to reform their economies so that in the future
they
will be
less reliant on the incomes from oil and gas). Furthermore, diversification should lead to
job creation for the fast-growing youth population.'7 The method to achieve these goals is
a combination of state
investments in
productive assets, a (re)vitalization of the
private
sec
tor,
and extensive foreign investments. These development plans thus send a clear signal
of a perceived need to displace the rentier state model which has dominated the economies
of these states since the advent of oil and gas, and replace it with a more market-driven,
private sector-focused, and production-oriented economic model like the Dubai model.18
The global financial crises that hit the world economies in the third quarter of
2008 have, however, challenged the sustainability of the Dubai model as the property
market crashed in 2008-2009 and it
was revealed that Dubai and its state-owned corpo
rations had accumulated a debt of approximately $100 billion dollars during the boom
years.19 The fundamental model behind Dubai's growth has not been questioned: the
need to base the Gulf economies on a firm,
production-oriented foundation in order
to provide both income and jobs for a fast-growing population. What has come into
question, however, is the speed of implementation undertaken in Dubai, the soundness
of some of the investments, and the lack of willingness on behalf of the government
to service debt accumulated by its state-owned corporations.20 Thus, the Dubai model
continues to provide both a positive and negative reference point for the development
of the other countries in the region. However, while it is relatively easy to emulate the
overt indicators of Dubai's development by,
for
instance, establishing artificial islands,
internationally standard office facilities, free-trade zones, and airports, it is much more
complicated, politically sensitive, and time-consuming to carry through real reforms
within the economy and its institutions aimed at changing the ground rules by which
these economies operate.
The aim of this article is to analyze to what degree the ground rules for the working
of a market
economy (as encompassed in the Dubai model) are in the process of being in
tegrated
into the
surrounding countries. More specifically, using Giacomo Luciani's (1990)
distinction between "allocation states" and "production states,"
it examines to what degree
the GCC countries are changing or adjusting their
underlying economic structures (i.e.,
through
economic reforms), making way for a more production-oriented economic struc
17. IIF, Tracking GCC Petrodollars.
18. The rentier state model will be defined later in the discussion of allocation and production
states. The standard references to this model are the two contributions by Giacomo Luciani and
Hazem Beblawi in the book Giacomo Luciani, ed., The Arab State (London: Routledge, 1990).
19. Matthew Martin, "Dubai Total Debt Hits $28.8bn.," MEED, No. 40, October 1—7, 2010.
20. See, for example, Eckart Woertz, Implication of Dubai's Debt Troubles, December 2009, GRC
Reports (Dubai: Gulf Research Center, 2009), p. 1.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
ECONOMIC AND INSTITUTIONAL REFORMS IN THE GCC ★ 89
ture.21
Throughout this article the term "The Dubai model" will be used as a metaphor
for a production-oriented developmental model. It must be emphasized that to pursue
the Dubai model does not imply that a given country wishes or needs to follow the exact
same development trajectory as Dubai (such as by allowing a relatively liberal social
policy, etc.).
ALLOCATION VS. PRODUCTION STATES
A rentier economy is an economy where the creation of wealth is centered on a
small fraction of the society.22
Allocation states (also termed distribution or rentier
states)
are characterized by the special circumstance that the state is largely dislocated from the
national economy, in that the state, because of large income from exports of oil, gas, or
other "rents," is not forced to tax the local economy to finance its activities. When the
state is liberated from the national economy in this
way, it is not under pressure to develop
an efficient economic basis for the country,
but can rather rest on distributing (or allocat
ing) the revenues it
accrues from rents. Luciani specifically defines an allocation state as
a state that attains most (at least 40%) of its revenue from oil or other
foreign sources and
where state expenses constitute a significant fraction of Gross Domestic Product (GDP).23
In the "production state," the situation is reversed. Here the erection of a solid economic
foundation for the country determines the state's ability to strengthen its
power, through
taxation, both nationally and internationally. In this way, economic growth becomes the
main aim of all production states, according to a simple logic of power.24
As pointed out by Hazem Beblawi, the assumption is that there is a consider
able difference between income "earned" through so-called "productive" activities and
income attained passively (through rents).25 Thus, it is argued that a rentier economy
gives rise to a "rentier mentality" in which the normal link between work effort and
payoff is disconnected. Payoff — income or fortune — is not the result of productive
work, but rather derives from chance (happening to sit on oil reserves, for example).
From such a perspective, wealth may best be compared to lottery winnings. This is, of
course, in direct contrast to the case for production-oriented economies, where a person
is rewarded for their effort or for taking part in a risky investment. Here, payoff is the
result of a process which may be connected to many years of education or hard work.
Emphasizing Beblawi's argument in regard to the "rentier mentality," Kubursi
claims that the plentiful and easily earned oil income has destroyed the economic struc
tures in the oil-rich states. He thus points to dependency upon oil as the most funda
mental problem for the Arab economies: "Dependency on the rent from oil has reduced
Arab incentives to diversify their economies, develop alternative manufacturing ca
21. Giacomo Luciani, "Allocation vs. Production States: A Theoretical Framework," in Giacomo
Luciani, ed., The Arab State (London: Routledge, 1990).
22. Hazem Beblawi, "The Rentier State in the Arab World," in Giacomo Luciani, ed., The Arab
State (London: Routledge, 1990), p. 87.
23. Luciani finds the Middle Eastern oil-producing states to be typical examples of allocation
states. Luciani, " Allocation vs. Production States," p. 72.
24. Luciani, " Allocation vs. Production States," pp. 71, 75. For a detailed discussion of whether
Dubai is a production or allocation state see Hvidt, "Public-Private Ties," p. 562.
25. Beblawi, "The Rentier State," p. 86.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
90 ★ MIDDLE EAST JOURNAL
pacities, promote export-oriented industries, encourage domestic savings, and anchor
income on solid productivity grounds."26
Academically, there is very little
disagreement as to the negative effects of rentier
ism. This has led to a call for
significant economic reforms of the Middle Eastern econo
mies, not least since the beginning of the 1990s when the neo-liberal doctrine embodied
in the Washington Consensus became the dominating ideology. One argument was that
inward-oriented, rent-based economies simply did not provide sufficient wealth and did
not create enough jobs to sustain themselves, which led writers to argue that the cost of
standing outside the globalized economy was simply growing too large.27
The concept of allocation and production states must be understood as extremes
on a continuum and, as such, most countries will lie somewhere between the two.
Dubai, certainly not free from possessing elements of rentierism, is to be understood as
a specific example of a production-oriented model.
ANALYSIS
In the section below, three analyses will be conducted in order to determine
whether the GCC states are reforming to adopt a production-oriented economic model.
First, I will analyze to what degree the six GCC states may be said to be allocation
states. Second, I will present an analysis of the degree to which the GCC countries
have, in fact, implemented economic reforms. Third, I will include data on Foreign
Direct Investments (FDI) in order to establish how the business world has responded
to the reforms made. For all three studies it is a basic condition that the available data,
which is published in and about these countries, is limited.
To What Extent are the GCC Countries Allocation States?
As mentioned, Luciani defines an allocation state as a state in which income
stems mainly from oil or other comparable sources and in which government spending
constitutes a significant percentage of GDP. Table 1 provides statistics for oil revenue
as a percentage of certain economic indicators.
From the table it is seen that between 62% and 80% of state income originates
from oil and gas in the Gulf countries. As such, each of these countries is placed well
within what Luciani defined as an allocation state. The GDI figures, however, indicate
that despite the central role of oil in these economies, other production and service
activities are, in fact, taking place.
26. Atif A. Kubursi, "Prospects for Regional Economic Integration after Oslo," in Michael C.
Hudson, ed., Middle East Dilemma: The Politics and Economics of Arab Integration (London: I. B.
Tauris, 1999), p. 311.
27. Toby Dodge and Richard Higgott, "Globalization and Its Discontents: The Theory and Prac
tice of Change in the Middle East," in Toby Dodge and Richard Higgott, eds., Globalization and the
Middle East: Islam, Economy, Society and Politics (London: Royal Institute of International Affairs,
2002), p. 28; Alan Richards and John Waterbury, A Political Economy of the Middle East (Boulder,
CO: Westview Press, 2008), p. 211.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
ECONOMIC AND INSTITUTIONAL REFORMS IN THE GCC ★ 91
Table 1: Oil as a Percentage of Economic Indicators in Gulf Countries
Country % of export earnings % of state income % of GDI
Bahrain >60 >70 11
Kuwait 95 80 -50
Oman n.a. 62 45
Qatar 85 70 >60
Saudi Arabia 90 75 45
United Arab
Emirates
45 70 25
Source: All values are from Europa Publications, The Middle East and North Africa Handbook 2008,
Vol. 54 (London: Europa Publications, 2007), see the respective country sections or CIA, CIA World
Fact Yearbook. The figures concerning Oman are from Global Investment House, Oman Economic
and Strategic Outlook: Witnessing a Period of Accumulative Growth (April 2008, Kuwait: Global
Investment House, 2008). It has not been possible to attain time series of these data. Data concerning
UAE is to be treated with caution, since there are significant differences in e.g. the oil resources held
by each of the seven emirates.
In addition to direct income, oil and gas make indirect contributions to the nation
al budgets through returns on investments abroad. Kuwait's Reserve Fund for Future
Generations, in which 10% of its yearly oil and gas revenues are placed, is merely one
example of the Sovereign Wealth Funds which are owned by the GCC governments.
This fund had $100 billion by the time of the first Gulf War in 1990-1991, and the re
turns on these investments were of an order comparable to the annual income from oil
and gas.28 The Institute of International Finance has made the following approximation
of the size of those funds in the GCC countries.29
Table 2: Estimated Total Foreign Assets (billions of dollars, ending 2006)
Bahrain Kuwait Oman Qatar Saudi Arabia UAE Total
20 400 10 70 450 600 1550
Source: IIF, Tracking GCC Petrodollars, p. 3
Even at a modest interest rate of 5%, these investments will secure the Gulf states an
additional $77 billion annually. The conclusion of the above analysis is clear-cut: the GCC
states can be classified as allocation states according to the definition offered
by Luciani,
since in general more than 70% of state income stems from the
income earnings related to
export of oil. In addition to the direct incomes from oil and gas, Saudi Arabia, Kuwait, and
the Emirates have made sizeable incomes from their oil-derived foreign assets.
28. Europa Publications, The Middle East and North Africa Handbook 2008, p. 689.
29. As a result of the financial crises asset prices have fallen sharply (by approximately 40%) which
has decreased the value of the Sovereign Wealth Funds. Their relative size and influence in the global
market will, however, remain large. IMF, Regional Economic Outlook: Middle East and Central Asia,
p. 11.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
92 ★ MIDDLE EAST JOURNAL
HAVE GCC STATES ENACTED SUBSTANTIAL ECONOMIC REFORMS?
In order to answer this question, I will analyze the economic reforms actually
implemented. Such reforms hold a clear indication of whether any given state has in
tentions of shifting from an allocation- to a production-oriented economy. Because
economic reforms are usually time-consuming and politically difficult to implement,
it is expected that only a motivated government will bother to create a business envi
ronment that allows for efficient private sector operation and investments, transparent
lending markets, efficient procedures and decision-making structures, lowered tariffs,
and other factors that facilitate cross-border trade.30 These types of reforms only be
come important if there is an aim to strengthen the productive sectors of the economy,
provide incentives to the private sector, and attract
foreign investment. In other words,
reforms tending towards liberalization, privatization, and deregulation of the econo
mies, or reforms aimed at strengthening institutions or governance, will be considered
an expression of the desire to move in the direction of a production-oriented economy.
There is a dearth of data that
could shed light
on the
degree of economic reforms. Two
indexes will be included in our analysis, namely the index Doing Business, published by
the
World Bank, and the Global Competitiveness Index by the World Economic Forum.
Each of the indexes employs its own methods and data. Typically, they encom
pass the official statistics published by the World Bank and the IMF, supplemented by
comprehensive data collection through panels of experts consisting of businesspeople,
consultants, lawyers, etc. in each country.
Doing Business
This index ranks 183 countries on the basis of ten parameters that express how
difficult (in terms of time and money) it is to set up, operate, and close a business. The
aim of the index is to measure the regulation and red tape relevant to the life cycle of a
domestic small- to medium-size firm. As such, it assesses the effort
it takes to apply for
and procure various licenses, employ workers, register property, get credit, pay taxes,
conduct international trade, enforce contracts, and close a business.31 A high rank (low
number) indicates that the regulatory environment is conducive to the operation of
businesses while a lower rank indicates the opposite. According to the 2010 index, the
five easiest countries in which to do business are Singapore, New Zealand, the USA,
Hong Kong, and the United Kingdom.
This index is relatively narrow in scope in comparison to the Global Competitive
ness Index, and does not, for
example, encompass items such as macroeconomic stabil
ity,
levels of corruption, the educational level of the labor force, the underlying strength
of institutions, or the quality of infrastructure.
30. Since reforms often are meet with significant criticism from the segment in society who stand
to lose by the implementation of reforms, reforms can only be seen through if there exists a clear and
important aim. Todaro and Smith, Economic Development, p. 535.
31. See http://www.doingbusiness.org.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
ECONOMIC AND INSTITUTIONAL REFORMS IN THE GCC ★ 93
The Reform Process in the Gulf Countries
The Middle East and North Africa (MENA) region has carried through a signifi
cant number of reforms over the years since the index was established. Two-thirds of
the countries have been implementing reforms, with Egypt, Saudi Arabia, and the UAE
being the most eager. Egypt has been a member of the group of Top Global Reformers
(the 10 countries which have implemented the most reforms within a year) for the last
three years (the 2008, 2009, and 2010 reports), Saudi Arabia was singled out by the
World Bank as belonging to this group of Top Global Reformers in the 2008 report,
and
the UAE made it into this group in the 2010 report.
Table 3, below, shows the rankings of the GCC countries from 2006-2010 in Doing
Business. These countries can be divided into three broad groups, namely Saudi Arabia and
Bahrain, which are by
far the most
business-friendly of the six countries, the UAE and Qatar,
which are situated between the two groups, and Kuwait and Oman which are the consider
ably more difficult
places to do business. In 2010, Saudi Arabia and Bahrain ranked among
the 25 most "business-friendly" nations in the world, and as such hold a ranking similar to
countries such as Iceland (14), Japan (15), Sweden (18), and South Korea (19). The UAE
and Qatar share ranks with France (31), South Africa (34), and Cyprus (40), while Kuwait
and Oman can be compared to Spain (62), Luxembourg (64), and Rwanda (67).
The six Gulf states which are the focus of this article obtain by far the best rankings
among the
group of MENA countries. The average rank of this
group of countries in 2010
is 39, while the average rank of the remaining countries in the region is 112. Only Israel
(29), Tunisia (69), and Yemen (99) are ranked better than 100.32 In other words, within
the Middle Eastern region, the
Gulf countries stand out as the easiest place to do business.
Table 3: Changes in ranking for Gulf countries, Doing Business, 2006-2010
Country DB 2006 DB 2007 DB 2008 DB 2009 DB 2010
Saudi Arabia 35 38 23 16 13
Bahrain * n.a. n.a. n.a. 18 20
UAE 68 77 68 46 33
Qatar * n.a. n.a. n.a. 37 39
Kuwait 40 46 40 52 61
Oman 52 55 49 57 65
* Bahrain and Qatar were not included in the index prior to DB 2009.
Source: World Bank, Doing Business 2010: Reforming through Difficult Times. Comparing Regula
tion in 183 Economies (Washington, DC: The International Bank for Reconstruction and Develop
ment (IBRD)ZWorld Bank, 2009), p. 4; World Bank, Doing Business 2009: Comparing Regulation in
181 Economies (Washington, DC: IBRD/World Bank, 2008), p. 6; World Bank, Doing Business 2008:
Comparing Regulation in 181 Economies (Washington, DC: IBRD/World Bank, 2007), p. 6; World
Bank, Doing Business 2007: Comparing Regulation in 181 Economies (Washington, DC: IBRD/
World Bank, 2006), p. 6; World Bank, Doing Business 2006: Comparing Regulation in 181 Econo
mies (Washington, DC: IBRD/World Bank, 2005), p. 92.
32. Author's calculations based on data from Table 1.3 in World Bank, Doing Business 2010, p. 4.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
94 ★ MIDDLE EAST JOURNAL
What Types of Reform are Undertaken?
As reported in the 2009 and 2010 Doing Business indexes, reforms have gener
ally been undertaken within four areas: the ease of starting
up businesses, getting credit
or credit information, registering property,
and trading across borders. The World Bank
considers those to be the easier types of reforms to do, because they can usually be car
ried out without any significant legal changes or difficult
political tradeoffs.33
As mentioned, Saudi Arabia has been implementing a significant number of re
forms over the last five years. Starting a limited liability business in Saudi Arabia used
to demand the highest minimum capital requirement in the world ($125,000). This
amount has been significantly reduced, as has the number of procedures it takes to start
a company (from 13 procedures to only seven). As a consequence, the number of days
it took to start a company in Saudi Arabia fell from 39 days to 15 days.
Those and other current reforms are a part of the so-called "10-by-10" initiative.
The "10-by-10" initiative was formulated in a statement by King Abdullah in 2006: "I
want Saudi Arabia to be among the top ten countries in Doing Business in 2010. No Mid
dle Eastern country should have a better investment climate by 2007,"34 The "10-by-10"
initiative followed a series of long-discussed reforms which have been implemented in
Saudi Arabia since 2000 to deal with the
challenges the
economy was facing, among them
the lack of
job creation in the public and private sectors and a lack of income generation,
and to qualify for membership in the World Trade Organization (WTO).35 Due to Saudi
Arabia's political structure,
especially its centralized decision-making, reforms could be
implemented at a very fast
pace, allowing the country to enter the WTO in 2005.
The goal for Saudi Arabia, therefore, was not only to improve its business cli
mate, but also to improve compared with other global competitors in order to make the
country more likely to attract foreign investments. Refer to Table 3 to see the change in
ranking of each of the six Gulf countries since 2006.
As can be seen, Saudi Arabia has improved its rank significantly, moving from
35th to 13th
place. The table also shows that the UAE has increased its rank consider
ably. Both Kuwait and Oman, however, have lost ground over the past five years to
more active reformers worldwide.
However, we should treat the ranking of Saudi Arabia with caution. No doubt that
significant
reforms have been undertaken in Saudi Arabia, but some evidence suggests that
the
Saudi Arabia General Investment
Authority
(SAGIA), which is charged with the
task of
implementing the reform
program, has been instrumental in depicting the reform
process
to
be more rosy than it
really is. Since the
Doing Business index primarily
uses decrees and
written laws as data for
calculating its
rankings,
it
implicitly assumes that a given law is im
plemented after it is passed. However, in Saudi Arabia quite a number of specific laws have
been passed but never implemented throughout
the administrative
apparatus.36
Furthermore,
33. World Bank, Doing Business 2010, p. 5.
34. World Bank, Doing Business in the Arab World: Comparing Regulation in 20 Economies
(Washington, DC: IBRD/World Bank, 2008), pp. 44-46.
35. Tim Niblock and Monica Malik, The Political Economy of Saudi Arabia (London: Routledge,
2007), p. 173.
36. Steffen Hertog, Princes, Brokers, and Bureaucrats: Oil and the State in Saudi Arabia (Ithaca,
NY: Cornell University Press, 2010), Chapter 5.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
ECONOMIC AND INSTITUTIONAL REFORMS IN THE GCC ★ 95
SAGIA employees, eager to please the King (and not
least to receive the personal bonuses
promised to them by King 'Abdullah if
they
succeeded) are believed to have targeted their
reform efforts to specific items which would most heavily affect their
ranking. As such,
the Saudi reform
program appears fragmented and only superficially implemented.37 The
description of the reform process in Saudi Arabia thus resembles what Andrew Walter
calls "mock compliance," by which he means that a country might have a rhetorical and
outward appearance of compliance with international standards while having hidden
behavioral divergences from such standards.38
A closer scrutiny of the data reveals that Gulf countries are particularly poorly
rated for their procedures related to enforcing contracts. In Saudi Arabia, for example,
it involves 44 procedures and takes 635 days to undertake the legal process of making
a claim of contract violation, and the cost involved amounts to 27.5% of the claimed
amount. Furthermore, the rankings of these countries are negatively affected by factors
related to getting credit, employing workers, protecting investors, and closing a busi
ness. Oman, in addition, scores very low in "dealing with construction permits."39
In sum, from the Doing Business index it is seen that the Gulf countries do rela
tively well, at least compared to the other MENA countries. It is far easier to set-up,
operate, and close down a business in the six Gulf countries than in the other Middle
Eastern countries and the other approximately 140 countries worldwide which have
obtained a lower rank. In the MENA countries only Israel is on par with the GCC coun
tries. The best-ranked Gulf countries are ranked similarly to many European states.
We have furthermore seen that Saudi Arabia and the UAE have improved their
ranks over the last five years, while Kuwait and Oman have fallen to a lower rank. Qatar
and Bahrain, which are placed relatively high, have not been rated before, and as such
conclusions cannot be drawn regarding their
progress.
Global Competitiveness Index
The World Economic Forum annually issues their Global Competiveness Report
and a biannual Arab World Competiveness Report.40 Competitiveness is defined broad
ly "as the set of institutions, policies, and factors that determine the level of productiv
ity of a country" and it is argued that more competitive economies tend to be able to
produce higher levels of income for their citizens.41
In calculating the Global Competitiveness Index (GCI), The World Economic
37. The end-of-year bonuses of the executive staff at SAGIA were dependent upon achieving or
surpassing targets set according to the rank of Saudi Arabia on the Doing Business index: Awwad Al
Awwad, 1FC Smart Lessons: Eliminating Minimum Capital Requirement and Facilitating Business
Start-up in Saudi Arabia (Washington, DC: International Finance Corporation/World Bank, 2007).
Personal communication with Steffen Hertog, Cambridge, Canada, August 28, 2009.
38. Andrew Walter, Governing Finance: East Asia's Adoption of International Standards (Ithaca,
NY: Cornell University Press, 2008), p. 5.
39. World Bank, Doing Business in the Arab World [2008], pp. 60—76.
40. The latest version of The Arab World Competitiveness Report was issued in 2007, World Eco
nomic Forum, The Arab World Competitiveness Report 2007 (Geneva, Switzerland: World Economic
Forum, 2007). The two previous reports are from 2003 and 2005.
41. World Economic Forum, The Global Competitiveness Report 2008-2009 (Geneva, Switzer
land: World Economic Forum, 2008), p. 3.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
96 ★ MIDDLE EAST JOURNAL
Forum uses 12 pillars, which provide a significantly broader description of each indi
vidual country's economy than the ones used in the Doing Business index. These pil
lars are: Institutions, Infrastructure, Macroeconomic Environment, Health and Primary
Education, Higher Education and Training, Goods Market Efficiency, Labor Market
Efficiency, Financial Market Development, Technological Readiness, Market Size,
Business Sophistication, and Innovation.42
In the 2010-2011 version of the index, Switzerland, Sweden, Singapore, the
United States, and Germany are rated as the five most competitive economies in the
world among the 139 countries included. The Gulf countries are rated in Table 4.
As the table illustrates, all six of the Gulf countries are placed among the 40 most
competitive economies in the world in 2010-2011. They are ranked along with coun
tries such as Belgium (19), New Zealand (23), China (27), Chile (30), and Thailand
(38). The competitiveness of five out of the six Gulf countries have increased since
2006 due to, among other things, an improved macroeconomic standing resulting from
record oil prices and sound policies over the last couple of years. These policies have
included business environment reform, investment in infrastructure,
economic diversi
fication, combating inflation, and improvements in educational systems.43
Table 4: Changes in the rank of the Gulf countries, Global Competitiveness Index,
2006-2011
Country Rank GCI
2006/07
Rank GCI
2007/08
Rank GCI
2008/09
Rank GCI
2009/10
Rank GCI
2010/11
Qatar 38 31 26 22 17
Saudi Arabia n.a. 35 27 28 21
UAE 32 37 31 23 25
Oman n.a. 42 38 41 34
Kuwait 44 30 35 39 35
Bahrain 49 43 37 38 37
Source: World Economic Forum, The Global Competitiveness Report 2010-2011 (Geneva, Switzer
land: World Economic Forum, 2010), Table 4, p. 15; World Economic Forum, The Global Competitive
ness Report 2008-2009 (Geneva, Switzerland: World Economic Forum, 2008), Table 4, p. 10; World
Economic Forum, The Global Competitiveness Report 2006-2007 (Geneva, Switzerland: World Eco
nomic Forum, 2006), Table 1, p. xvii. Note: For some of the countries, data exist for the years 2004/05
and 2005/06. However, they were ranked by a different methodology, and thus are not compatible with
the latest data set. See World Economic Forum, The Global Competitiveness Report 2006-2007.
In order to investigate further the underlying factors behind the rankings, the fol
lowing table highlights the rank obtained by each country in each of the 12 pillars. The
scores for Switzerland, the highest ranked country, are included for
comparison.
42. For an in-depth explanation of these pillars, see World Economic Forum, The Global Competi
tiveness Report 2008-2009, pp. 3—6.
43. World Economic Forum, The Global Competitiveness Report 2008-2009, p. 30.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
ECONOMIC AND INSTITUTIONAL REFORMS IN THE GCC ★ 97
Table
5:
Gulf
countries
ranking
on
each
of
the
12
pillars
in
the
Global
Competitiveness
Index,
2010-2011
Innovation
factors
Innovation 23 28 30 76 59 <N
Business
sophistication <N ON 22 45 58 55
Efficiency
enhancers
size 66 22 in 73 59 98 36
Technological
readiness 36 42 59 77 27 t-»
Financial market develop ment ON 22 33 30 63 20 00
Labor
market efficiency 66 26 36 s 28
Goods market
efficiency CN O 25 54 ON
Higher education and training 32 in 36 63 CO
00 44
Basic
requirements
Health and primary educa tion in 74 38 99 68 36 r
Macro economic enviroment OO 22 CM <N in
Infra structure 25 28 cn 33 09 27 so
Institutions o <N 20 SO 46 27 r
Overall rank r <N 25 34 35 37
Country Qatar Saudi
Arabia UAE Oman Kuwait Bahrain Switzerland
r
0
I
■a
<u
S
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
98 ★ MIDDLE EAST JOURNAL
The first
thing
to notice is the considerable variation among the six countries. Qatar
is characterized by strong
institutions and macroeconomic indicators, but is weak in
busi
ness sophistication and innovation. The UAE is strong in institutions, infrastructure,
and
macroeconomic stability, but weak in education and innovation. Saudi Arabia is weak
in its educational system (which prepares graduates insufficiently
for
jobs in the private
sector), levels of foreign competition, and financial markets. Furthermore, Saudi Arabia
is characterized by restrictive
labor regulations and a poor work ethic among the national
labor force.44 Bahrain has excellent macroeconomic stability, good infrastructure,
health
and primary education systems, and the most sophisticated financial market in the
region,
but shows weaknesses when it comes to higher education, labor market
regulations, busi
ness sophistication, and innovation. Kuwait is characterized by weak institutions, infra
structure,
and education, but possesses a macroeconomic situation that is rated the third
best in the world with a budgetary surplus of nearly 44% of GDP and basically no gov
ernment debt in 2008. Business leaders perceive the educational system to be out of sync
with the needs of a competitive economy, with math and science education highlighted as
needing improvement45 Oman has a good institutional environment and macroeconomic
stability,
but has significant shortcomings in its educational system. There is also a need
to upgrade the labor market and improve innovative capacity.
This brief overview explains the relatively weak rating of the Gulf countries
among the 40 highest-ranked economies worldwide. They do relatively well according
to the "basic requirements" of competiveness (namely according to institutions, infra
structure,
macroeconomic stability, and health and primary education), while perform
ing worse on "efficiency enhancers" (i.e., higher education, goods markets efficiency,
labor market efficiency, financial market development, technological readiness, and
market size — except Saudi Arabia). Additionally, they are ranked comparatively lower
on the "innovation and sophistication" factors.
At a very general level, the table above highlights the fact that
even though the GCC
countries do relatively well in a worldwide comparison of competiveness, their econo
mies have not yet
progressed to a stage where they
are innovation-driven. They are gener
ally either
factor-driven (competing on their factor endowment, such as in oil and gas) or
efficiency-driven (where competition is based on efficient
and high-quality production).
Only the UAE is classified as an innovation-driven economy, where high income levels
are being sustained by competing internationally with new and unique products.46
In recognizing this, the 2007 Arab World Competitiveness Report highlighted
what they considered to be the three most significant challenges that need to be ad
dressed to improve competitive performance and maintain growth momentum among
the GCC countries. These are: educational reform, investment in research and develop
ment (R&D), and an overhaul of the organization and regulation of the labor markets.
Improvements within these areas would both address high unemployment, the need to
diversify the economies, and the current mismatch between educational skills and the
needs of the private sector.47
Significant infrastructural investments are also singled out
44. World Economic Forum, The Global Competitiveness Report 2008-2009, p. 31.
45. World Economic Forum, The Global Competitiveness Report 2008-2009, p. 32.
46. World Economic Forum, The Global Competitiveness Report 2010-2011, p. 7.
47. World Economic Forum, The Arab World Competitiveness Report 2007, p. 16.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
ECONOMIC AND INSTITUTIONAL REFORMS IN THE GCC ★ 99
as necessary for making the economies more competitive.48
Above we have seen that all of the GCC countries improved their ranking on the
GCI over the last five years. This is due to progress within economic or institutional
reforms, as well as their
much-improved macroeconomic standing, despite the financial
crises which commenced in summer 2008.
From the more narrowly-defined and business-specific Doing Business index we
saw that all six Gulf countries do relatively well in comparison with the other 183
countries ranked there. Saudi Arabia (even though its ranking should be treated with
caution) and the UAE have progressed considerably over the last five years, as have
Bahrain and Qatar. However, Kuwait and Oman have been slow to reform and have
therefore slipped in overall rankings.
The above data indicates that a reform process in the direction of a more produc
tion-oriented economy is taking place. In general, it has become easier to open, operate,
and close a business in the six Gulf countries over the last five years. The markets are
being regulated and opened to international competition and standards as all countries
are now members of the WTO. Furthermore, all countries have invested significant sums
of money in improving the competitiveness of their economies through improvement
in infrastructure,
macro-economic environment, health, education, etc., thereby making
their economies more likely to attract
local as well as international investors.
The data provided here does not, however, reveal anything about the cause of these
reforms. As argued in the early part of this paper, it is not likely that such reforms would
have been implemented on their
own, without direct action by policymakers. It is beyond
the scope of this article to determine whether the drive behind these reforms comes from
demands raised by the local private sector, government entities responsible for
long-term
planning within society (job creation), or by rulers or other societal actors. We know,
however, that these reforms have taken place in a general setting
conducive to reform: un
precedented income from
oil, a dominant international ideology of
neo-liberalism, global
ization and free
trade, and an explicit recognition that
foreign investments are necessary
in order to transfer
management and technology components to the local economies.
INFLOWS OF FDI TO THE GCC COUNTRIES
One of the targeted outcomes of reforms both in the business environment and in
societies at large is an increase in FDI. Such investments are deemed important even in
capital surplus countries because FDI brings with it not only capital, but also equally
or possibly even more important, access to new technology and modern management
methods.49 The following table details FDI flows into the Gulf countries.
As depicted in Table 6, the total
amount of FDI flowing into
the six GCC countries has
been rising significantly
since 2000. The flow has increased from a meager $392 million in
2000 to
approximately $60 billion in
2008, followed by a fall of
approximately $10 billion in
2009. In other
words, the volume has increased approximately 153 times over the decade.
48. World Economic Forum, "MENA Region Still Suffers from Infrastructure Deficit" (Geneva:
World Economic Forum, 2010), http://www.weforum.org/news/mena-region-still-suffers-infrastruc
ture-deficit?fo=l.
49. Charles W. L. Hill, International Business. Competing in the Global Marketplace, 2nd ed. (Bos
ton: Irwin/McGraw-Hill, 1999), p. 176.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
100 ★ MIDDLE EAST JOURNAL
Table
6:
FDI
Inflows
into
the
GCC
Countries
2009 257 145 2,211 8,722 35,514 4,003 50,852
2008 1,794 in 2,359 4,107 38,151 13,700
O
NO
O
CD
NO
2007 1,756
NO
3,332 4,700 22,821
OO
46,912
2006 2,915 122 1,597 3,500 17,140 12,806 38,080
2005 1,049 234 1,538 2,500 12,097 10,900 28,318
2004 865 (N
-
1,199 1,942
o
o
© 14,145
2003 516
OO
VO ^O
(N 625 778 4,256 6,133
2002 217 122 624 453 1,314 2,734
2001 O
00 -175 in 296 504
OO
1,894
2000 364 NO CO
00 251 183 -505 392
C/3
U
c5
i-i
c
Country Bahrain Kuwait Oman Qatar Saudi
Arabia
c
W
a
S-H
<
£
'S
Total
Gulf
Countries
0
<N
1
|
O
o
<N
00
<N
0
Co
-5
<3
Q
Q
s
03
Q
5
1
•JC
s
£
^3
t
s
B
a
Q
5x5
fc
s
Co
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
ECONOMIC AND INSTITUTIONAL REFORMS IN THE GCC * 101
Furthermore, it can be seen that two countries are primarily responsible for this
increase, namely Saudi Arabia and the UAE. The latter
experienced a gradual increase
in FDI starting in 2002 while FDI inflow to Saudi Arabia experienced a steep increase
from 2004 onward. In 2008, Saudi Arabia attracted approximately $38 billion while
the UAE attracted $14 billion. The remaining $11 billion was attracted by Bahrain and
Qatar, and to a much smaller extent, Oman and Kuwait.
The global financial crisis that struck the global economy in the third quarter of
2008 is the likely cause of the diminishing FDI inflows seen in 2009. In total, the FDI
inflow declined by $9.2 billion. Saudi Arabia lost an inflow of $2.6 billion, while Qatar
increased their inflow by $4.6 billion. The big loser was the UAE, which experienced
a $9.7 billion decline in inflow. Dubai accounted for the majority of the decline in the
UAE due to its open and real estate-based economic model and not least by the signifi
cant debt it had been carrying during its boom years. In October 2010, Dubai and its
state-owned corporations held a debt of approximately $100 billion.50
However, if FDI is recalculated on a per capita basis, we find that Qatar is the
largest recipient of FDI within the GCC group. In 2009, it attracted $6.3 million per
capita while Saudi Arabia attracted $1.4 million, the UAE attracted $0.9 million, and
Oman $0.8 million.51
These significant increases in FDI flows are likely the outcome of two types of
policies aimed at attracting such investments. First, changes were made in the regula
tory
environment around foreign investments to meet international standards (allowing,
for example, full foreign ownership, and not requiring a local sponsor). Second, and
probably of more significance, larger parts of the economy were opened to foreign in
vestment possibilities. In 2002, the UAE, spearheaded by Dubai, became the first
place
in the Gulf region to legalize foreign ownership of property under the so-called "free
hold" arrangement.52 In a similar fashion, by 2004 Saudi Arabia opened opportunities
for international companies to invest in the oil sector, public utilities (electricity and
water production), and infrastructure. As evidenced by the preceding table, such poli
cies evidently attracted investments in an international setting of high liquidity.
It is important to note that the significant influx of FDI to the region does not nec
essarily contribute to the creation of a stronger private sector, which would normally be
expected. Both in Dubai and in Saudi Arabia, a significant part of the FDI has entered
state-owned enterprises, such as oil production, public sector companies, and public
utilities. However, no data exists to quantify this claim.
CONCLUSION
What can be concluded from the above analysis? Is the "Dubai model" displacing the
rentier state
model, or,
more precisely,
is it
possible to identify
a shift from an allocation state
50. Martin, "Dubai Total Debt Hits $28.8bn."
51. Calculated by the author from FDI data from 'UNCTADstat' (see source of Figure 1) and pop
ulation data from UN population Division, World Population Prospects: The 2008 Revision, http://
esa.un.org/unpp/index.asp?panel=2.
52. "Dubai Issues List of Freehold Locations," Gulf News, April 30, 2007. See also Richard Nield,
"The UAE's Economy: A Tale of Two Cities in 2010," MEED, Middle East Economic Review 2010
(2010).
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
102 ★ MIDDLE EAST JOURNAL
model toward a more production-oriented economic model among the
GCC countries?
The short answer is that it appears so. From the limited data available, it can be
concluded that the Gulf countries seem to be in the process of reforming their econo
mies, and thus preparing their economies to become more diversified and probably also
more reliant on the private sector.
Taking a closer look at the data, however, reveals significant differences among
the GCC countries. In relation to easing the procedures around setting up, running, and
closing a business, Saudi Arabia and the UAE stand out with intensive reform
programs,
even though the Saudi reform
program might overstate the actual reforms implemented.
Kuwait and Oman, on the other hand, have fallen in the rankings due to their slow pace
of reforms. The analysis of the FDI data both in absolute terms and on a per capita basis
confirms the conclusion that Qatar, the UAE, Saudi Arabia, and Oman are opening up
their
economies and, through reform
processes, have made their economies attractive to
international investors.
The rankings of the GCC countries on the Global Competitiveness Index show
a much more uniform pattern than the rankings in the Doing Business index. Except
Kuwait, all countries have improved their ranks over the last four years as a result of
both an improved macroeconomic standing resulting from high oil revenues and not
least from sound policies aimed at reforming the business environment, infrastructure
investments, economic diversification, and combating inflation, among other things.
In other words, it
can be concluded that the GCC countries have been conducting
economic and institutional reforms in recent years which seem to be laying the ground
work for a production-oriented economy. While this is certainly an important initial
step for these countries in reaching their stated aims of diversifying their economies
and revitalizing the role of the private sector, rolling back 30 to 50 years of rentierism
is not a process that can be accomplished easily or hastily.
While it cannot be concluded that the allocation state model has been displaced
by the production-oriented Dubai model, it can be concluded that a process has been
initiated, which — given the right political and economic circumstances -—
might even
tually lead to the adoption of a more production-oriented economic model.
This content downloaded from 130.225.157.199 on Tue, 17 Nov 2015 05:47:43 UTC
All use subject to JSTOR Terms and Conditions
