Private Sector Development - OxGAPS · Private Sector Development in the Gulf States Summer 2017 A...

Private Sector Developmentin the Gulf States

Summer 2017 A Publication based at St Antony’s College

Featuring

H.E. Sultan bin Saeed Al-MansooriMinister of EconomyUnited Arab Emirates

H.E. Abdulaziz bin Hamad Al-AgeelSecretary GeneralGulf Organization for Industrial Consulting

Mutlaq Mubarak Al-SaneiGeneral ManagerKuwait Authority for Partnership Projects

Yousuf Mohamed Al-JaidaChief Executive OfficerQatar Financial Centre Authority

Foreword byAlia Moubayed

OxGAPS | Oxford Gulf & Arabian Peninsula Studies Forum

OxGAPS is a University of Oxford platform based at St Antony’s College promoting interdisciplinary research and dialogue on the pressing issues facing the region.

Senior Member: Dr. Eugene Rogan

Committee:

Chairman & Managing Editor: Suliman Al-AtiqiVice Chairman & Co-Editor: Adel HamaiziaEditor: Adam RasmiArabic Content Lead: Lolwah Al-KhaterHead of Outreach: Mohammed Al-DubayanCommunications Manager: Aisha FakhrooBroadcasting & Archiving Officer: Oliver Ramsay Gray

Copyright © 2017 OxGAPS ForumAll rights reservedSummer 2017

Gulf Affairs is an independent, non-partisan journal organized by OxGAPS, with the aim of bridging the voices of scholars, practitioners and policy-makers to further knowledge and dialogue on pressing issues, challenges and opportunities facing the six member states of the Gulf Cooperation Council.

The views expressed in this publication are those of the author(s) and do not necessar-ily represent those of OxGAPS, St Antony’s College or the University of Oxford.

Contact Details:OxGAPS Forum62 Woodstock RoadOxford, OX2 6JF, UKFax: +44 (0)1865 595770Email: [email protected]: www.oxgaps.org

Design and Layout by B’s Graphic Communication.Email: [email protected]

Cover: City view of Dubai.

Photo Credits: cover - derege/123RF; 2 - Pacific Press / Alamy Stock Photo; 6 - Chris-tine Osborne Pictures / Alamy Stock Photo; 9 - Karim Jaafar/AFP/Getty Images; 14 - Yasser Al-Zayyat/AFP/Getty Images.

The Issue “Private Sector Develoment in the Gulf States” was supported by:

Table of Contents

I. Overview

II. Analysis

III. Commentary

Private Sector Development in the Gulf Statesby Mark Neal, Theme Editor

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ii Gulf Affairs

The Private Sector and Social Divide in the GCCby Rola Dashti

Encouraging Private Sector Growth in the GCCby Tim Callen

Toward a Post-Oil Economyby Oliver Cornock

The Gulf’s Booming Tourism Sectorby Hassan Al Ibrahim

The Case for a New Economic Model in Omanby Yousuf Al Balushi

The Role of the Private Sector in the GCC Growth Modelby Khalid Alkhater

Privatization in the Gulf Statesby Paul Stevens

Unleashing Small-to-Medium Enterprises in the Gulf Statesby Fadi Farasin & Cihat Battaloglu

Business Politics and Private Sector Developments in Kuwaitby Anastasia Nosova

Foreword

by Alia Moubayed

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H.E. Sultan bin Saeed Al-MansooriMinister of EconomyUnited Arab Emirates

H.E. Abdulaziz bin Hamad Al-AgeelSecretary GeneralGulf Organization for Industrial Consulting (GOIC)

Mutlaq Mubarak Al-SaneiGeneral ManagerKuwait Authority for Partnership Projects (KAPP)

Yousuf Mohamed Al-JaidaChief Executive OfficerQatar Financial Centre (QFC) Authority

Timeline

Table of Contents

IV. Interviews

V. Timeline

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Private Sector Development in the Gulf States | Summer 2017 iii

iv Gulf Affairs

The private sector is a major stakeholder and partner in economic development—it plays a key role in cre-ating jobs, supporting inclusive growth and providing critical services. Yet in most Gulf states, the private sector’s contribution to growth and employment (despite some recent improvements) remains limited and its role in service provision almost marginal. The sharp fall in oil prices toward the end of 2014 has high-lighted the private sector’s over-reliance on oil windfalls. Ever since then, its growth has been severely hit by cuts to spending and the tightening of banks’ liquidity. This has underscored the need to rethink the Gulf region’s existing growth model and ensure private sector development is put at the center of ongoing economic diversification efforts.

Accelerating private sector development is a macroeconomic imperative for Gulf states. Unemployment remains relatively high and averages 25 percent, while youth unemployment exceeds 30 percent in some countries. The public sector employs more than 80 percent of nationals, and the rising wage bill is a ma-jor drag on public finances and increasingly a burden to sovereign balance sheets. Providing an enabling environment for private sector growth and devising policies to encourage job creation in the private sector is therefore necessary to preserve socio-economic stability and improve living conditions. Moreover, by expanding the role of the private sector in public services provisions, private investment levels should rise and the ensuing fiscal savings should then be reallocated toward growth-enhancing spending as well as strengthening safety nets. This would improve the quality of fiscal adjustments and consolidate macroeco-nomic stability.

To date, Gulf states have made significant progress in advancing reforms aimed at improving the busi-ness environment for private sector growth—yet these efforts remain insufficient. The Gulf states have improved their World Bank’s Doing Business rankings following important institutional and regulatory reforms, including changes to contract enforcement and company insolvency frameworks. Large invest-ments in infrastructure, as well as the continued modernization of their financial sector, has also helped to make the Gulf economies more competitive. The Gulf states are now in the upper echelons of the 2016-2017 World Economic Forum’s Global Competitiveness Report, with the UAE ranked as the 16th most competitive economy out of 144 countries, followed by Qatar at 18th and Saudi Arabia at 29th. Neverthe-less, businesses operating in Gulf states are still challenged by restrictive labor regulations, an inadequate-ly educated workforce, inefficient government bureaucracy, a lack of capacity to innovate and, to some extent, a lack of access to finance.

The new wave of the Gulf region’s national development strategies puts renewed emphasis on expanding the role of the private sector. These call for tackling the remaining obstacles to private sector development listed above, promoting entrepreneurship and small to medium-sized enterprises (SMEs) and transferring ownership of key public sector enterprises to the private sector. In that respect, Gulf policymakers are keen to resort to public-private partnerships (PPPs) in order to enhance the provision of services through syner-gies between public authorities and private companies. While the UAE has been at the forefront of these initiatives, other Gulf states are determined to catch up.

As the reform momentum gains speed, accessible finance and efficient regulation are essential to capture the opportunities offered by the region’s national transformation plans. According to the World Bank, no

Foreword

Forewordby Alia Moubayed

vPrivate Sector Development in the Gulf States | Summer 2017

Foreword

more than three percent of bank lending in the Gulf states goes to SMEs, compared to eight percent in the wider MENA region and 18 and 22 percent respectively in middle- and high-income countries. Although support to SMEs has rapidly increased over time, this has occurred at a different pace across the region: the SME sector accounts for more than 50 percent of economic activity in the UAE and 35 percent in Saudi Arabia, but is under-represented elsewhere (28% in Bahrain and 14% in Oman). Recent initiatives—like Enterprise Qatar, Kuwait’s National Fund for Small and Medium Enterprises and Saudi Arabia’s Kafalah program—are helping to provide training, advisory and financial services to SMEs. Moreover, several countries have adopted national policies requiring that 10 percent of all future government tenders be awarded to SMEs—Saudi Arabia’s newly-launched “local content” program goes in that direction.

On the regulatory front, the plan to expand the use of PPPs to finance large infrastructure projects will require robust, legal, governance and supervisory frameworks. This is critical because PPPs can be com-plex, multigenerational endeavors requiring substantial private sector commitment and close government supervision. PPP laws already exist in Dubai and Kuwait and are being modernized, but other countries like Saudi Arabia and Oman are still in the process of developing theirs.

Ultimately, however, a thriving Gulf private sector requires building local talents and skills. The Gulf states have made significant investments in the educational sector, as is evident by the increased enroll-ment and improvement in educational attainment over time. Nevertheless, most Gulf students (except for recent progress in the UAE and Bahrain) still lag behind international standards in mathematics, science and reading. The transition toward a knowledge-based economy and the desire to expand the manufactur-ing base into high value-added industries still requires major adjustments to the region’s educational sys-tems. The experiences of Malaysia and Mexico in using targeted investments to address skills shortages may be a useful case study in this regard. But until the supply of skilled national labor becomes sufficient, Gulf states will need to attract the best international talent and maintain their flexible labor and migration policies to avoid hampering the much-needed expansion of the region’s private sector.

Alia Moubayed is Director of the Geo-economics and Strategy Programme at the International Institute for Strategic Studies (IISS), based in London. She specializes in macroeconomic and trade policy, the econom-ics of the Middle East and the political economy of resource-rich countries. She contributes to IISS research, represents the Institute at conferences internationally and in the media, and delivers briefings to government and corporate audiences.

Private Sector Development in the Gulf States

by Mark Neal, Theme Editor

I. Overview

iv Gulf Affairs

Overview

For years, governments of hydrocarbon-rich Gulf states have proclaimed their commitment to diversifying away from oil and gas through expanding their private sectors and encouraging entrepreneurship and small-to-medium enterprises (SMEs). Some governments, like those in Bahrain and Dubai, have achieved much progress toward that end. Yet most Gulf states have struggled to create vibrant and mixed private sectors—the region’s economies are still largely dominated by petrochemicals, public sector institutions and family-owned conglomerates.

This situation is frustrating for those who wish to see the Gulf economies placed on a more sustainable footing. Reliance on mineral extraction along with fluctuating energy markets has ensured that the Gulf states have been prone to budget volatility, stop-start development and a recent dramatic tightening of fis-cal conditions. It has also led governments to view their citizens as an expense rather than as a beneficial tax base.

Nonetheless, governments and elite networks depend on citizens to be acquiescent for their survival. That’s why a social contract ensuring that oil revenues are used to look after the needs of the people has been sustained for decades in the Gulf states. Public sector employment has been offered on a massive scale and through increasingly aggressive workforce localization policies. Yet in the past few years, budgetary pressures have meant that the vast state-financed “job-factories” have become too expensive to maintain. The public sector job market is now “full,” and the private sectors in most Gulf states (barring perhaps the UAE and Qatar) are not large or dynamic enough to employ the ever-growing numbers of high school and university graduates demanding jobs.

The region’s governments are acutely aware of the ever-growing economic problems—they have been for decades, and they know the solutions to these problems. But even with the low oil price environment, Gulf policymakers are still loath to take the necessary steps to tackle them. Some observers have explained this apprehension as a result of governmental incompetence or lack of vision; others have said it reflects the re-gion’s culture of incrementalism, which encourages a wait-and-see approach to governance and economic management. In reality, the Gulf states’ reluctance to rebalance their economies boils down to a more basic fear of wider political reform.

Each of the Gulf economies is dominated by a handful of extended families who constitute the political and economic elite. Typically, these are merchant families who have historically provided financial support to the royal family and expected favors in return. Executive political power in each Gulf state is thus a balanc-ing act of keeping citizens acquiescent while catering to the economic demands of powerful families whose continued support is critical to regime survival. For the elite families, their local markets are secure and their involvement in lucrative mega-projects is practically guaranteed.

The families thereby benefit from the unsustainable status quo. A true rebalancing of the region’s econo-mies would mean relinquishing the elite’s market fiefdoms. It would mean opening them up to competition from small, innovative local start-ups and major foreign players. Family-owned conglomerates in many

I. Overview

v

sectors would quickly find this multivalent competition to be a significant threat. Understandably, they strike deals with political elites to prevent such an outcome. What becomes left of reform are political-ly-backed glamour projects and cosmetic initiatives that are passed off as sweeping changes. For this reason, there is a gap between rhetoric and reality in the Gulf region. Economic, fiscal and social policy decision-making is ultimately made through a process of satisficing. Meanwhile, for all their wide-ly-broadcast privatization initiatives, Gulf states experience little real creative-destructive entrepreneur-ship and innovation. The residual private sectors remain wrapped up in red tape, with SMEs unable to challenge the pre-existing economic domination of the old merchant families.

But there is still a path forward for the Gulf states. This would require policymakers to pursue a number of reforms, including: 1) the dismantling of subsidies; 2) the introduction not just of a value-added tax (VAT), but also income, inheritance and corporate taxes; 3) a new wave of meaningful privatization efforts that loosens both the ownership and control of elite families; 4) a breaking down of the state-sustained barriers to market entry for particular sectors; 5) the end to formal and informal barriers against foreign owner-ship and entry into domestic markets; 6) a trimming down of the public sector and 7) an end to the social contract that keeps citizens disengaged from the decision-making that affects their lives. Broadly, these efforts demand moving toward a more sustainable future where decisions are made first-and-foremost in the interests of ordinary citizens. For this to happen, meaningful representation should be instituted and a free press allowed to uncover the corruption and hidden deal-making that lies at the heart of some gov-ernmental and corporate decision-making.

Gulf policymakers know that such moves would help readjust their economies, expand the private sector, encourage entrepreneurialism and ensure a more dynamic economic and civic future. Gulf leaders know the problems and the solutions—they always have. It’s just a matter of how willing they are to enact the necessary changes.

Dr. Mark Neal is Associate Professor at Sultan Qaboos University, Oman. Prior to this he was Senior Lectur-er in International Management (MENA) at SOAS, University of London. He specializes in leadership and social change in the Middle East and South East Asia, and is currently writing the Dictionary of Business and Management in the Middle East for Oxford University Press. He can be contacted at [email protected].

Private Sector Development in the Gulf States | Summer 2017

II. Analysis

The Private Sector’s Role in the GCC Growth Model

by Khalid Alkhater

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II. Analysis

roduction in the Gulf states is concentrated in two main areas: hydrocarbons (public sector) and non-tradables (private sector). The public sector extracts oil, redistributes rents, provides public ser-

vices and employs citizens. Practically speaking, the private sector does not participate in production, but instead receives rent and recycles it through concentrating on three main activities: construction, services and trade imports.1 This economic model is characterized by exploiting oil booms through maximizing short-term rent extraction from fiscal expenditures. A major drawback of this model is that the abundant supply of low-skill, low-cost foreign labor available to the private sector has obviated the need to invest in technological improvement and productivity enhancement.

Decades of declining productivity

Over the past four decades, much of the Gulf region’s GDP growth has been driven by factor inputs expan-sion (mainly capital and labor). Indeed, total factor productivity (a measure of technological improvement) has actually been negative for most of the previous decade in four Gulf states. In comparison, developed economies like Singapore, Norway and the United States have all seen positive total factor productivity between 2000 and 2007 (see Table 1).

Gulf Affairs

Workers lay paving stones on a constructions site in Dubai, UAE on 7 May 2014.

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II. Analysis

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Table 1: The contribution of factor inputs to GDP growth (2000-2007)

Country GDP Growth Capital Labor Human Capital

Total Factor Productivity

Oman 4.4 3.3 1.8 0.4 − 1.1Qatar 9.2 7.2 2.8 0.5 − 1.3Saudi Arabia 3.5 2.0 1.9 0.7 − 1.0Singapore 6.0 1.1 1.6 0.5 2.8Norway 2.6 0.9 0.5 0.7 0.6U.S.A 2.4 1.2 0.7 − 0.3 0.7

Source: Qatar 2010 IMF Article IV Consultation Staff Report.Note: Data is listed in average growth percentage rates.

Moreover, the large influx of foreign labor to the Gulf states has profoundly altered the demographic and social structure of the region. Nationals are already becoming minorities in their homelands and make up only 9 percent of the total population in Qatar, 11 percent in the UAE, 30 percent in Kuwait and 47 percent in Bahrain.2 In Qatar alone, the population has more than doubled from 800,000 to 1.6 million in the oil boom period between 2005 and 2009. Since then population growth has slowed somewhat, with the popu-lation reaching 2.6 million in February 2017. (For the sake of perspective, Qatar’s population was 109,000 in 1970.) The region’s population boom has strained housing, social services and general infrastructure in several Gulf states.

The rapid expansion of real estate and construction has drawn skilled national labor and capital to the assets sector. This further reinforces the concentration of the private sector in non-tradables, and in the meantime crowds out the export tradable sector and fuels asset price inflation. As is often the case, the asset boom bubble eventually bursts and a prolonged recession ensues until oil prices begin rising again. This was the case in both the 1980s and the 2000s.

With the completion of the oil boom cycle in 2014, the role of the private sector in diversification appears to have weakened, as is evident by the fall in productivity and the private sector’s further concentration in non-tradables.3 As such, the Gulf’s economies seem to be trapped (between boom and bust cycles) in a low-technology, low-productivity equilibrium. As a result, the private sector provides little investment and employment opportunities for citizens. It neither participates actively in economic diversification nor pro-vides a tax base for the state.

The rent-seeking private sector

The reality of the Gulf economies today appears to be at odds with the claims of national development plans that seek to build human capital and diversified knowledge-based economies with robust private sec-tors that generate employment opportunities for citizens. Rather, the private sector has performed worse over time and has lost its pre-oil historical role in development—it was more independent and had greater influence on the economic and political decision-making process when it used to provide a tax base.4

Today, the Gulf private sector has become a client of the rentier state. It is highly subjected to political pa-tronage and closely connected to the political elites. Decades of accumulating capital, benefiting from gen-


erous state spending and enjoying protec-tive regulations has enabled the private sector to establish business empires and form barriers to entry to many business activities. As the private sector capitaliz-es on cheap energy and factor inputs, the

rentier states deplete their non-renewable resources in the long run.5 At the same time, the Gulf region’s private sector has not utilized the advantages of cheap factor inputs in upgrading technology or industrial development.

Is reform possible?

For the Gulf region’s private sector to play an active role in sustainable development, policymakers need to address a few issues. First, reforms should aim to dismantle monopolistic structures in the economies. This would support creating a dynamic and competitive private sector that can actively participate in technolog-ical development, diversification and generating employment for citizens.6 In part, doing so would require reforming the outdated commercial agency system that appears to create monopoly power within narrow groups of individuals and families. Such concentrations of market power and wealth can potentially pre-empt the development of local infant industry through unfair competition. Some analysts have suggested that conditioning government support to the private sector on clearly-defined programs can help achieve progress in technological improvement, diversification, penetrating world export markets and generating employment.7

Second, reforms are needed to make it worthwhile for private investors to take on riskier ventures in the competitive world export market. This requires a shift from growth that is driven by factor inputs toward growth that is more reliant on human capital, innovation and technological development. To support these objectives, capital expenditures need to be directed more toward developing these areas.

Admittedly, these tasks are easier said than done. Such reforms require revamping the entire Gulf rent-ier-growth model of extracting resources and redistributing rent. The rent distribution mechanism, the most essential element of preserving the autocratic rentier state, underpins the region’s political status quo. Structural reforms therefore face many obstacles—but change remains more important today than ever.

Dr. Khalid Rashid Alkhater is a Qatari economist specializing in monetary policy and political economy.

1 Alkhater, Khalid. “The Challenges of Oil Prices Collapse and Economic Diversification in the GCC Countries.” In Cooperation Council for the Arab States of the Gulf: Socio-Economic Challenges, 464-534. Doha and Beirut: Arab Center for Research and Policy Studies, 2016.

2 “Percentage of Nationals and Foreign Nationals in GCC Countries’ Populations (Latest Year Available, 2010-2016).” Gulf Labour Markets

and Migration, Jeddah, 2017. http://gulfmigration.eu/media/graphs/Graph1_09_05_2017.pdf.3 Kapiszewski, Andrzej. “Arabs versus Asian Migrant Workers in the GCC Countries.” United Nations Expert Group Meeting on Internation-

al Migration and Development in the Arab Region, Beirut, 2006.

“Qatar: 2010 Article IV Consultation—Staff Report; Staff Statement and Supplement; Public Information Notice on Executive Board Discus-

sion, and Statement by the Executive Director for Qatar.” IMF Country Report No. 11/64, Washington, 2010. http://www.qcb.gov.qa/English/

Publications/ReportsAndStatements/Documents/cr1164[2].pdf.

4 Gulf Affairs

II. Analysis

For the Gulf region’s private sector to play an ac-tive role in sustainable development, policymak-ers need to address a few issues.

II. Analysis

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Hertog, Steffen. “The private sector and reform in the Gulf Cooperation Council.” Kuwait Programme on Development, Governance and

Globalisation in the Gulf States, London, 2013. http://eprints.lse.ac.uk/54398/1/Hertog_2013.pdf. 4 Crystal, Jill. Oil and Politics in the Gulf: Rulers and Merchants in Kuwait and Qatar. Cambridge: Cambridge University Press, 1990.;

Chaudhry, Kiren Aziz. The Price of Wealth: Economics and Institutions in the Middle East. Ithaca: Cornell University Press, 1979.; Vas-

siliev, Alexei. The History of Saudi Arabia. New York: New York University Press, 2000.; Onley, J., and Sulayman Khalaf. “Shaikhly

Authority in the Pre-oil Gulf: An Historical-Anthropological Study. History and Anthropology 17, no. 3 (2004), 189-208.; Davidson, Christo-

pher. Dubai: The Vulnerability of Success. New York: Columbia University Press, 2008.; Hertog, “The private sector and reform in the Gulf

Cooperation Council.”5 Hertog, “The private sector and reform in the Gulf Cooperation Council.”6 Alkhater, “The Challenges of Oil Prices Collapse and Economic Diversification in the GCC Countries.”7 Hertog, “The private sector and reform in the Gulf Cooperation Council.”


n response to lower oil prices since the summer of 2014, the Gulf states have been devising wide-rang-ing economic reform plans. In most cases, central to these plans are options to privatize state-owned

enterprises (SOEs). Many experts suggest that such privatizations could solve some of the region’s under-lying economic problems.

Extensive economics literature says that privatization is supposed to do many things to contribute to the greater economic good.1 It is supposed to: 1) create more effective incentives to improve performance; 2) force greater accountability on senior management; 3) reduce government interference in business oper-ations that gives management clear commercial targets unfettered by social policy requirements and 4) reduce the financial constraints on enterprises that have hitherto been dependent on increasingly cash-strapped governments. Yet much of this current discussion in the Gulf states disregards the negative consequences of privatization experiences elsewhere—particularly those in the UK—during the 1980s and 1990s.

Today, the lessons of privatization raise serious doubts about the effectiveness of possible similar programs

II. Analysis

6 Gulf Affairs

Privatization in the Gulf Statesby Paul Stevens1

Sohar Power Company’s desalination plant in Oman. The company is 65% privately-owned. The power sector leads privatization efforts in the country.

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1 This article is an adapted version of a 2016 Chatham House report.

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in the Gulf states. The ideological arguments in favor of privatization were derived from concepts such as the economic theory of politics, theories of public choice and principal-agent analysis. By the early 1980s, these arguments had concluded that government intervention in the allocation of economic resources (this had been the norm in post-WWII Western economies) actually led to “government failure.” This was re-garded as more damaging to an economy’s performance than “market failure,” which was said to arise because of imperfect competition, information asymmetries and the presence of externalities and public goods. These views gave rise to what became known (disparagingly) as the Washington Consensus. This simplistic view of how an economy works has now thankfully been discredited. That being said, there can be little doubt that economic development in any economy still requires an active and vibrant private sec-tor.

The UK case study

Privatization programs in the UK in the 1980s under then-prime minister Margaret Thatcher shows that simply switching from public to private ownership is not in itself sufficient to improve economic performance. Other necessary conditions are also required, including: 1) increased competition; 2) improved signals that force management to be responsive, flexible and inventive; 3) reduced government interference to allow management to maximize shareholder value and 4) effective and efficient capital markets to impose the necessary discipline on managers.

However, these conditions did not exist in the UK during the 1980s. That’s why when the Thatcher gov-ernment took a state-owned, vertically-integrated gas company that was a monopoly (single supplier) and a monopsonist (single buyer) and sold it off it was actually converted it into a privately-owned, vertically-in-tegrated gas company that was also a de facto monopoly and monopsony. Unsurprisingly, the only effect was to allow the management of the new private company to increase their remunerations. When the UK government later privatized electricity, it took a different approach and managed to split off the transmis-sion network from the generators, with the latter divided into two companies in the failed hope they would not collude. It took over a decade, largely thanks to aggressive independent regulation, to resolve the sub-sequent mess and create more competitive industries.

It’s all about competition

The problem for the Gulf states is that their socio-political contexts are not conducive to creating these nec-essary conditions. Competition is the key to a successful economy, and this may prove elusive because the region’s economy is based upon family and other elite patronage networks.2 Property rights are dubious, the rule of law may be debatable and the prospects for independent regulation of privatized enterprises are at best uncertain. Most SOEs are vertically-integrated monopolies and are likely to be sold intact to increase the revenue from their sale. These private buyers are likely to retain advantages associated with lack of competition, subsidized input prices and access to relevant infrastructure. Moreover, capital mar-kets in the Gulf states are far from efficient. They are small and volatile, and it is doubtful that they would be able to exert the necessary discipline on enterprises to improve performance.

Economic liberalization without politi-cal liberalization and reform to release the enormous talent, ability and imagi-nation present in the Gulf states is un-likely to realize the region’s economic goals.


40%

35%

30%

25%

20%

15%

10%

5%

0%Bahrain

Private SectorKuwait

Private SectorQuatar

Domestic SectorSaudi Arabia

Total Women’s Labor Force

II. Analysis

8 Gulf Affairs

For these reasons, privatization alone will not be the cure-all that many experts believe it will be for the Gulf states. For the private sector to flourish in the region, a better process is required that would allow easier entry for new competitors to level the playing field. This is especially relevant given the increasingly urgent need to diversify the region’s economies away from dependence on oil.

Crucially, it is worth remembering that oil revenue is not income. It simply represents a re-shuffling of a country’s portfolio of assets—in effect, exchanging oil below ground for money above ground. Given that oil assets are in decline—either because of natural depletion, transition to a low carbon economy or because of lower prices—it is essential that governments use these above ground assets to create alternative and real income generating sources.

The benefits and risks of economic competition

Increased competition is a more realistic way forward for Gulf states than simply encouraging privat-ization. Yet this raises the basic question of whether ruling elites and families in the Gulf states will be content to see the rise of a robust private sector and its concomitant potential political power. In the 1950s and 1960s, for example, the new military-based governments in the Middle East and North Africa arose from what became known as the “colonel syndrome.” These new rulers deliberately destroyed the private economic power of the old elites to undermine the basis of their political power.3

However, economic liberalization without political liberalization and reform to release the enormous tal-ent, ability and imagination present in the Gulf states is unlikely to realize the region’s economic goals. If the current privatization programs simply deliver a set of windfalls for the state and its ruling elites while simultaneously reinforcing traditional patronage networks, this is likely to aggravate the same percep-tions of corruption and helplessness that triggered the Arab uprisings at the start of 2011.

Professor Paul Stevens is a Distinguished Fellow at Chatham House.

1 Stevens, Paul. “Energy Privatization: Sensitivities and Realties.” The Journal of Energy and Development 23, no. 1 (1997): 1-14.2 Crystal, Jill. Oil and politics in the Gulf: Rulers and merchants in Kuwait and Qatar. Cambridge: Cambridge University Press, 1995; Kamrava, Nonneman, Nosova, and Marc Valeri. “Ruling Families and Business Elites in the Gulf Monarchies: Ever Closer?” Chatham House, London, 2016.3 Owen, Roger. State, Power and Politics in the Making of the Modern Middle East. London: Routledge, 1992.

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II. Analysis


Unleashing Small-to-Medium Enterprises in the Gulf States

by Fadi Farasin & Cihat Battaloglu

Qatari entrepreneur and founder of the Q-Talent company, Maryam al-Subaiey (L), and Caroline Carpentier, French author of “Qatar Success Stories - Inspiring Women,” stand at Subaiey’s boutique in Doha on 23 February 2015 selling “Made in Qatar” items.

he Gulf region is one of the most youthful areas of the world. Fifty percent of the region’s people—na-tionals and foreigners alike—are under the age of 30.1 While this demographic gift holds great prom-

ise for the Gulf states in terms of economic development, it also carries many threats. Widespread youth unemployment in particular can serve as a catalyst for instability, radicalism and conflict.

The youth unemployment rate in Saudi Arabia, Oman and Kuwait is already much higher than the global average (see Figure 1, left). Moreover, unemployment is highest among the most educated segment of the youth populations in various Gulf states (Figure 1, right). These facts have opened up space for disgruntled citizens to register their discontent at the direction of government policies.

Historically, Gulf states have relied on their hydrocarbon wealth to increase salaries and jobs in the public sector in order to quell social discontent. Yet times are now changing—the public sector is bloated and the drop in oil prices since mid-2014 is straining government budgets (the region’s cumulative fiscal deficit is forecasted to top $475 billion between 2016 and 2021).2 This is forcing Gulf states to reduce hiring, cut subsi-dies and halt infrastructure projects. As such, the region needs new tools and approaches; fortunately, entre-preneurship and small-to-medium enterprises (SMEs) can fill much of this void as engines for job creation.3

T

II. Analysis

10 Gulf Affairs

35%30%25%20%15%10%

5%0%

31%

21%18%

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SaudiArabia

Yout

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Youth Unemployment

Oman Kuwait UAE Bahrain Qatar

World youthunemployment

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Saudi Arabia

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Youth Unemployment

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SMEs in the Gulf states

People of the Gulf region have high labor and employment expectations, but increasingly socio-economic realities are failing to meet these expectations.4 While the role of micro, small and medium enterprises (MSMEs)5 cannot be over emphasized in terms of its contribution to GDP and employment generation (particularly in emerging economies), there is room for substantial improvement.6

The number of MSMEs per 1000 people (also known as MSME density) in the Gulf region stands at 24.5. This figure is better than in other developing countries, but remains significantly lower than in developed countries (Figure 2, left). In fact, MSME density is very low in most Gulf states and ranges from a high of 30.3 in Saudi Arabia to a low of 3.8 in Oman (Figure 2, right). This low density of MSMEs shows that there is much room for improvement. The region’s governments can help by promoting entrepreneurship and creative business ideas among people, as well as establishing an environment conducive for MSMEs to do business and thrive.

Figure 1: 2017 unemployment projections in the Gulf states

Figure 2: MSME density

Source: Authors’ analysis is based on the International Labour Organization’s (ILO) Key Indicators of the Labour Market (KILM), 9th edition, 2016.

Source: Authors’ calculations are based on the International Finance Corporation’s (IFC) MSME country indicators, 2010.

40%35%30%25%20%15%10%

5%0%

24.5

17.4

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GCC

MSM

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er 1

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OtherDevelopingCountries

DevelopedCountries

Saudi Arabia

MSM

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GCC Average = 24.5

QatarUAE KuwaitBahrain Oman

II. Analysis

11

Ease of doing business

Much like MSME density, the Gulf states perform better on the World Bank’s Doing Business indicator than oth-er developing countries, but worse than developed ones (Figure 3, left).7 What is worrisome is that, unlike other developing countries, the Gulf region has failed to ma-terially improve its score in recent years (66.2 in 2017 compared to 66.1 in 2010). In fact, the Gulf region experienced a significant drop in 2014 from which it has yet to recover. The main reasons for this include the increased difficulty in starting a business and in getting electricity. (In Saudi Arabia, trading across borders became more difficult in 2014, which also contributed to the drop in the region’s Doing Business indicator.)

The main reasons for this include the increased difficulty in starting a business and in getting electricity.


At the country level, the Gulf states exhibit wide differences (Figure 3, right). The UAE is the top perform-er and the country that increased its Doing Business score the most between 2010 and 2017, from 70.8 to 76.9. Oman and Bahrain are the other two Gulf states that have also improved their score during the same period. On the other hand, Kuwait, Qatar and Saudi Arabia all recorded drops in performance. In particular, Saudi recorded a decline from 67.9 to 61.1, the largest fall in the region.

Obstacles facing SMEs

The Doing Business indicators reveal two areas (see Figure 4) in particular where the Gulf states need to improve upon. The first relates to insolvency, and entrepreneurs rank the risk of going bankrupt as the greatest fear associated with starting a business.8 If SMEs are to flourish, Gulf states need to free would-be entrepreneurs from this fear. This would require making it easier to resolve insolvency by incorporating good practices. Specifically, this could include: 1) introducing new restructuring procedures; 2) revising bankruptcy laws to provide updated provisions for dealing with bounced checks and 3) improving provi-sions on treatment of contracts during insolvency proceedings.

Source: Authors’ calculations are based on the World Bank’s 2017 Doing Business indicator.

80

75

70

65

60

55

50

80

75

70

65

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502010

2010

2011

GCC Other Developing Countries Developed Countries

2012 2013 2014 2015 2016 2017

2017

76.1 76.7 76.7 76.9 77.0 77.0 77.4 77.7

66.1

54.2 54.856.1 56.4 57.3

56.0 56.2 56.9

66.367.0 67.9 68.5

65.2 65.3 66.2

Dis

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Dis

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Bahrain Kuwait Oman Qatar SaudiArabia

UAE

Figure 3: Doing Business Indicator

II. Analysis

12 Gulf Affairs

The second biggest obstacle for SMEs is obtaining credit, which is exacerbated by religious beliefs. A 2009 Gallup poll showed that the overwhelming majority of adults in the Gulf states deem religion to be an important part of their daily lives (95% in Qatar, 94% in Bahrain, 93% in Saudi Arabia, 91% in Kuwait and 91% in the UAE).9 This leads many SMEs to voluntarily exclude themselves from formal financial markets due to sharia requirements related to banking. Indeed, sharia-compliant products are simply not as widely available in the market—of the 36 percent of banks in the Middle East that offer SME products, only 17 per-cent offer Islamic borrowing options.10 Encouraging the development of more Sharia-compliant products and instruments can play a key role in eliminating the barriers to getting credit faced by many SMEs.

While reforming insolvency and access to credit rules can improve the ease of doing business in the Gulf states, other factors also play a role. Protecting minority investors, easing cross-border trade and amending property and contract laws are other potential reform areas. Focusing on all of these aspects would help Gulf policymakers realize their goal of developing a sustainable private sector rooted in robust MSME activity.

Fadi Farasin and Cihat Battaloglu are researchers at the Statistical, Economic and Social Re-search and Training Centre for Islamic Countries (SESRIC), a subsidiary of the Organisation of Islamic Cooperation (OIC).

100

80

60

40

20

0

34.3

Resolvinginsolvency

Gettingcredit

Protectingminority investors

Enforcingcontracts

Tradingacross

bordersDealing

withconstruction

permits

Registering property

Getting electricity

Startinga business

Payingtaxes

40.851.9

59.3 64.376.8 79.3 79.6 83.6

92.2

Figure 4: The Gulf region’s performance across ten regulatory areas

Source: Authors’ calculations based on the 2017 World Bank’s Doing Business indicator.

1 Authors’ calculation is based on the 2015 UN World Population Prospects.2 “Economic Prospects and Policy Challenges for the GCC Countries.” IMF, Riyadh, 2017. https://www.imf.org/external/np/pp/

eng/2016/102616b.pdf.3 Thurik, Roy and Sander Wennekers. “Entrepreneurship, Small Business and Economic Growth.” Journal of Small Business

and Enterprise Development 11, no. 1 (2004): 140-149.4 Farasin, Fadi, Battaloglu, Cihat and Adam Atauallah Bensaid. “What is Causing Radicalism in the MENA?” Arab Center for

Research and Policy Studies, Doha, 2017. http://english.dohainstitute.org/file/get/be8a57a1-4bd4-471b-9bbb-840c20ecdbf5.pdf.

5 MSMEs are generally defined as follows: micro enterprises: 1–9 employees; small: 10–49 employees and medium: 50–249 em-

13

II. Analysis


ployees. Some countries define MSME categories differently. Please see the IFC’s “Companion Note for the MSME Country Indicators” for more information: http://www.ifc.org/wps/wcm/connect/624b8f804a17abc5b4acfddd29332b51/MSME-CI-Note.pdf?MOD=AJPERES&CACHEID=624b8f804a17abc5b4acfddd29332b51.

6 Saleem, Qamar. “Overcoming Constraints to SME Development in MENA Countries and Enhancing Access to Finance.” IFC Advisory Services in the Middle East and North Africa, 2013. https://smefinanceforum.org/sites/default/files/post/files/457586_ifc_sme_report_final.pdf.

7 The Doing Business indicator looks at regulations that impact SMEs in the largest business city of an economy. Zero rep-resents the lowest possible score and 100 the highest.

8 “A second chance for entrepreneurs.” European Commission, Brussels, 2011.9 Crabtree, Steve. “Religiosity Highest in World’s Poorest Nations,” Gallup. August 31, 2010. http://www.gallup.com/

poll/142727/religiosity-highest-world-poorest-nations.aspx.10 “Islamic Banking Opportunities Across Small and Medium Enterprises in MENA.” International Finance Corporation,

2014. https://www.ifc.org/wps/wcm/connect/7ab5500045503ad09e619ec66d9c728b/Executiv+Summary+final+31-8-2014+.pdf?MOD=AJPERES.

II. Analysis

14 Gulf Affairs

Business Politics and Private Sector Developments in Kuwait

by Anastasia Nosova

Kuwaiti National Petroleum Company (KNPC) CEO Mohammad al-Mutairi (C) and the president of Hyundai Engineering and construc-tion (HDEC) Jung Soo-Hyun (C) during the al-Zour refinery signing ceremony on 13 October 2015 at KNPCs headquarters.

onventional wisdom suggests that when it comes to the business community’s engagement in Ku-wait’s politics, there is a post-oil unwritten pact, or “gentlemen’s agreement,” that has carved out

separate spheres of influence. According to this theory, the ruling family handles all political matters and merchants handle all business ones—non-interference is expected in each other’s respective domains.1 Even academic literature on the history of ruler-merchant relations in Kuwait has asserted that the coun-try’s parliamentary body was used long ago by the ruling powers to disarm the rise of a potential mer-chant opposition. In turn, merchants are said to have generally abandoned formal politics in exchange for state-distributed wealth and business opportunities.2

But even a cursory look at Kuwait’s political history shows that this narrative is largely unfounded. While there is a great variation in the patterns of political participation among Kuwait’s merchant families, some families have been continuously active in parliamentary politics since the National Assembly was first es-tablished in 1963. Furthermore, the fact that businesses are able to directly engage in the political process has a tangible effect on economic policy-making.

C

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II. Analysis

A history of state-business cooperation

The most rewarding form of political engagement for Kuwait’s business community includes direct participation in parliamentary elections and the appointment of ministerial and advisory positions, such as in al-Diwan al-Amiri (the government headquarters). This gives individual businesses direct access to the major political and economic decision-making fields. The more government-de-pendent the business sector is, the more is at stake for merchants to ensure that they have first-hand access to the commercial opportunities distributed by the state. Indeed, the al-Ghanim, al-Khorafi, al-Saqr and al-Roumi families have long had the most consistent political presence, and they are predominantly involved in sectors like construction, engineering and oil and gas.3 The need to secure government con-tracts and tenders requires these families to maintain a consistent presence in the political arena.

The ability of merchants to advance their economic goals and protect their business opportunities via the legislative and policy-making levels has been particularly evident during the previous parliament’s term (2013-2016). Before then, Kuwait went through a period of turbulence between 2008 and 2012, with sev-eral consecutive assemblies being dominated by populist and Islamist opposition groups that were hostile to the business community. The opposition saw the country’s business elite as part of the corrupt ruling circle, receiving a disproportionately large share of oil wealth and business opportunities while depleting public funds. Some of the previous parliament’s measures were therefore deliberately antagonistic toward merchant interests.

Challenging the business elite

In 2008, the National Assembly passed the Build-Operate-Transfer (BOT) law, which was supposed to regulate the relationship between the public and private sectors and enhance the latter’s participation in development and infrastructure projects. Yet in practice, the law was viewed by merchants to be deliber-ately designed to harm their interests.4 In the end, not a single BOT project was launched until the law was amended. The 2008 parliament also attacked (via corruption allegations) two big petrochemical projects—the Zour oil refinery and the planned K-Dow joint venture with Dow Chemical. The K-Dow venture was later cancelled and the Zour oil refinery was delayed. Both were heavy blows to Kuwait’s business sector and the country’s image as a place open to foreign investors.5

One of the most contentious issues in Kuwait has been privatization. Opponents say that instead of reach-ing its genuine aim of benefiting the population at large, privatization would enrich the existing monopolist and well-established business elite. Another concern is related to the fate of national employees working in government entities that would be privatized. Due to these concerns, parliament passed the Privat-ization Law (No. 37/2010), which, despite being long-awaited, was deemed by the private sector to be too restrictive. Following the law, any privatization initiative has to be carried out through the creation of a shareholding company, in which the government retains a majority “golden share” and the business is subject to regulatory scrutiny and price control. The law also prioritizes the rights and benefits of national employees—a private investor is prohibited from laying off people or reducing wages and benefits during a

The most rewarding form of political engagement for Kuwait’s business com-munity includes direct participation in parliamentary elections and the appoint-ment of ministerial and advisory posi-tions.


fixed number of years after privatization.6 The legislative restrictions have made privatization less attrac-tive for the private sector, and the business community has been continuously voicing its dissatisfaction with the law for years.

Businesses mobilize in response

The growing encroachments on business activities in Kuwait were one of the main reasons that merchants mobilized politically. The July 2013 election was a turning point, with the opposition fractured and the merchant-backed groups and individuals returning to the formal political scene as strong government backers. Such a shift toward business activism was immediately reflected in reversing the trajectory of Kuwait’s 2008-2012 economic policies.

Facilitated by the National Assembly, which was now dominated by merchant interests and headed by a representative of an old merchant family (Marzouq al-Ghanim), the government was able to drastically expand its capital spending. Kuwait launched a record number of infrastructural and development proj-ects compared to prior years. While the previous 2010-2014 Development Plan saw only 57 percent imple-mentation, most of this occurred in 2014 alone.7 In addition, parliament approved in February 2015 a new 2015-2020 Development Plan for KD 34.15 billion. This plan calls for ramping up infrastructural projects, enhancing public-private partnerships and increasing the private sector’s share in the economy from 26.4 to 41.9 percent by 2020.8

Even projects that had been stalled by the previous assemblies were now revived and re-awarded—includ-ing the contentious Zour refinery. By the end of August 2014, the government had awarded more than KD six billion worth of contracts, which was twice as much as during the whole of the previous year.9 This increased capital spending inevitably found its way to the established business community in the form of state contracts and business opportunities.

The 2013 assembly also managed to reverse and amend certain legislative provisions in order to benefit business interests. The contentious 2008 BOT law was amended in June 2014, and its current iteration is much more business friendly. As well, in 2013 parliament approved an amendment to the housing law permitting the private sector to participate in developing housing projects on state-owned lands. The gov-ernment has subsequently announced that it would launch several housing projects (al-Mutla‘, al-Subiya and Sabah al-Ahmad residential cities), which would be carried out by private sector firms.

The opposition strikes back

The merchant-dominated parliament also strove to amend the 2008 privatization law and pursue broad-scale privatization across various sectors, including the postal services, Kuwait Stock Exchange, Coopera-tive Societies, sports clubs, the downstream oil sector and the Ministry of Electricity and Water. While the new law was supposed to be laid out before the end of the 2013 parliament’s term, the premature disso-lution of the National Assembly in October 2016 and the return of opposition MPs to the House after the elections in November 2016 stalled these efforts.10 The latest parliament has yet again created obstacles for merchants trying to ensure the passage of business-friendly legislation.

The changing trajectories of economic policies over the past four years in Kuwait illustrates the impact

16 Gulf Affairs

II. Analysis

that the merchants’ political involvement can have on policy-making. Under the pretext of developing, diversifying and empowering the private sector, the merchant-aligned MPs’ political stance was to encour-age the government to reverse the “damage” done by previous assemblies and ensure that the business elite’s interests were protected. This further reveals the clash of economic and political interests in Kuwait. Over time, opposition groups gradually returning to parliament will magnify the schism between the old merchant elites and the “want to be rich” new entrants who are socially disconnected from the traditional establishment.

Dr. Anastasia Nosova completed her PhD in LSE on Kuwait’s business elite and parliamentary politics and is currently working at FTI Consulting, London.

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II. Analysis


1 Based on an interview in Kuwait during April 2015.2 Crystal, Jill. Oil and Politics in the Gulf: Rulers and Merchants in Kuwait and Qatar. Cambridge: Cambridge University

Press, 1995.3 Based on Michael Herb’s and Georgia State University’s Kuwait Politics Database. See: http://www.kuwaitpolitics.org/. 4 Interview with a member of an old merchant family in Kuwait in October 2014.5 Kinninmont, Jane. “Kuwait’s parliament: an experiment in semi-democracy.” Chatham House briefing paper, London, Au-

gust 2012. https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Middle%20East/0812bp_kinninmont.pdf.

6 “New Kuwaiti privatisation law under the microscope.” DLA Piper, Kuwait City, 2010. http://information.dla.com/informa-tion/published/Kuwait_Privatization_Law_English.PDF.

7 “Kuwait Lays Out Project Agenda With State Development Plan.” Oxfordbusinessgroup.com. Accessed in 2015. https://www.oxfordbusinessgroup.com/analysis/setting-wheel-motion-new-development-plan-lays-out-ambitious-project-agenda.

8 “MPs pass five-year development plan.” Kuwaittimes.net. Last modified February 11, 2015. http://news.kuwaittimes.net/mps-pass-five-year-development-plan/.

9 “Kuwait Year in Review 2014.” Oxfordbusinessgroup.com. Last modified January 19, 2015. http://www.oxfordbusinessgroup.com/news/kuwait-year-review-2014.

10 “Privatization bill ready in two weeks.” Kuwaittimes.net. Last modified March 27, 2016. http://news.kuwaittimes.net/web-site/privatization-bill-ready-two-weeks/.

GCC Security Amid Regional Crises | Spring 2016 23

III. Commentary

20 Gulf Affairs

III. Commentary

The Private Sector and Social Divide in the GCC

by Rola DashtiSuccessful economic reform depends on citizen buy-in

ince the dramatic fall of oil prices began in mid-2014, policymakers in the Gulf Cooper-

ation Council (GCC) states have come to realize amid shrinking fiscal balances that maintain-ing a rentier state approach is not conducive to sustainable development. GCC states have thus reaffirmed their political commitment to fiscal reform, reducing oil dependence and diversi-fying toward a knowledge-based economy. In particular, recent economic development plans have focused on reform policies that increase the private sector’s growth and expand its role within the region’s economy. But despite these efforts, the private sector’s contribution to the knowledge economy, research and innovation remains negligible.

Today, the private sector contributes about 35 percent of the Gulf states’ GDP, generating

about $120 billion in inter-trade within the GCC and employing about 80 percent of the workforce. Yet most of this employment has been filled by low-paid and low-productivity migrant work. For the most part, the private sector still provides lit-tle quality employment that would be acceptable to nationals—particularly in the wealthier Gulf states of Kuwait, Qatar and the UAE.

The GCC private sector’s wealth has surpassed $2 trillion, and the majority of it is in the hands of family businesses. Given the limited investment opportunities within the region’s vital produc-tive economic sectors, most of the private sector’s funds are redirected and invested outside of the region. Locally, Gulf businesses mostly function as agents or intermediaries for international firms that provide the bulk of the region’s goods and services. Moreover, both the size and growth of the private sector in the GCC economies is highly dependent on government expenditures.

The success of diversification policies relies, from each government’s perspective, on initiating re-form measures and addressing structural barri-ers to diversification. Specific focus areas include improving the education system, enhancing the efficiency of the labor market, reducing regula-tory barriers to competition, developing effective government institutions and constructing mar-ket-friendly administrative and regulatory laws.

Businesses vs the citizenry

But policymakers must be cognizant of the aris-ing conflict between the business community and citizens. At the moment, both compete for state resources and rely heavily on government spend-ing while contributing little to fiscal budgets. The private sector employs relatively few Gulf nation-als and concentrates business opportunities in the hands of few families that generate minimal productive investment and entrepreneurship op-portunities for the region’s growing and well-ed-ucated citizenry. Part of transforming economic activities and expanding the private sector’s role should include the privatization of government assets (including utilities, transportation ser-vices, oil and gas related activities, infrastructure, health and education) and public-private part-nership (PPP) projects. Doing so will attract both local investment and foreign direct investment

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III. Commentary

21

(FDI), increase job creation and reduce state ex-penditures. Only then will the government’s role in the various Gulf states shift away from being the main investor, provider of services and em-ployer toward becoming merely a facilitator, reg-ulator, enabler and driver of business.

Yet adopting privatization and PPP policies will be seen by citizens as a transfer of wealth from the state to the business community. In the ab-sence of policies that will safeguard citizens from the negative effects of privatization, public sup-port for these reforms will be negligible. This will likely lead to public outcry, discontent and social unrest in the long run.

But a balance can be struck. Kuwait’s parliament has ameliorated this concern in their privatiza-tion and PPP laws. These laws have stated that any privatized entity will be 50 percent owned by citizens through an initial public offering (IPO) at par value per share, 24 percent owned by the state and 26 percent owned by the private sector. The operation and management of these compa-nies will be carried out by a strategic investor, and 70 percent of these companies’ workforce must be nationals. In addition, the Kuwaiti parliament passed a foreign investment law that encourages FDI and increases the transfer of technical know-how and administrative capacities from foreign companies to domestic businesses. All of this has led many nationals to acknowledge the benefits of privatization and PPP since it has provided them a with a stake in the reform program.

Challenges within the private sector

For the private sector to succeed as GCC govern-ments have envisaged, several internal and ex-ternal factors must also be addressed. Internally, the private sector needs to adopt plans that will reduce its dependence on government spend-ing, address the issue of business separation of ownership and management, improve corporate governance and deal with uncertainty over busi-ness succession (only 17 percent of GCC family businesses have put in place effective succession plans).

Externally, the private sector must strike a bal-ance between the economic gains resulting from

a more diversified economy on the one hand and increased societal interdependence and corpo-rate social responsibility on the other. Increasing societal linkages can be achieved by supporting entrepreneurial ventures and opportunities, pro-viding employment to citizens and developing in-ternship and apprenticeship programs with uni-versities and vocational training institutes. These efforts will help ensure a successful private sector in the Gulf.

Dr. Rola Dashti is a former MP and Minister of Planning and Development in Kuwait.

The success of diversification policies relies, from each government’s per-spective, on initiating reform mea-sures and addressing structural bar-riers to diversification.


22 Gulf Affairs

III. Commentary

Encouraging Private Sector Growth in the GCC

by Tim Callen 1

It’s time to wean the Gulf economies off oil

he growth model followed by Gulf Coopera-tion Council (GCC) countries has delivered

strong economic outcomes over several decades. The model is based on the extraction and expor-tation of oil (with oil sales making up the vast majority of both export and fiscal revenues), and the oil sector accounting for a high share of na-tional GDP. Historically, growth in the non-oil sector has also been closely linked to oil. The government’s spending of oil revenues on pub-lic sector wages on the one hand and goods and services provided by companies on the other has long been the main driver of non-oil economic growth. Yet the sharp drop in oil prices since mid-2014 has underscored the weaknesses of this economic model. Over the past two years,

growth in the Gulf states has slowed noticeably as governments have reduced spending amid lower oil revenues.

Change is now needed more than ever to move away from oil-led growth and toward a sustain-able employment-generating private sector. Achieving this will reduce the exposure of the GCC economies to the volatility of the global oil market, help create private sector jobs and in-crease productivity.

The benefits of diversification

Gulf states have long-recognized the importance of encouraging sustained private sector growth and diversification. They all have development plans that aim to move their economies in this di-rection. Perhaps the one that gets most attention because of the scale of its ambition is Saudi Ara-bia’s Vision 2030 released in April 2016.

On the face of it, Gulf states already have in place many features that are favorable to private sec-tor development. Infrastructure is generally very good, taxes are low and the populations are both young and growing. Yet the incentives facing workers and businesses have been skewed by the distribution of oil money in the economy.

To this day, nationals still largely prefer public over private sector employment or entrepreneur-ship. That’s because significant wage and benefit gaps skew the supply of national labor toward the public sector, with the demand for private sector labor filled by expatriates. For example, in Sau-di Arabia around 70 percent of nationals work in the public sector whereas expatriates hold 80 percent of private sector jobs. These preferences are amplified by working conditions including a shorter work week for government employees, as well as the perceived stability of public sector em-ployment.

Education and skills also play a key role. Nation-als are often perceived as not having the skills needed by the private sector, and the desire for public sector work in turn skews the educational choices of nationals. As for businesses, it has been

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1 The views expressed in this article are those of the author and do not necessarily represent the views of the IMF, its executive board or its man-agement.

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III. Commentary

less risky and more profitable to use the ready supply of low-skilled and low-wage foreign labor to produce non-tradables in industries like con-struction.

Steps toward a robust private sector

These skewed incentives will need to be realigned before sustained and diversified private sector growth can take hold. To do so, what policies can governments pursue?

First, it is important that governments are clear about future fiscal policy. Policymakers should ex-plicitly set out their plans in medium-term fiscal frameworks that would allow workers and busi-nesses to make informed decisions about future employment and investment opportunities. The reality of the new oil price environment is that government spending will be lower than in the past, public employment will begin to slow and government contracts will be less easily available. All of this needs to be transparently communicat-ed so that behavior is adjusted accordingly.

Second, labor market reforms are essential. The competitiveness of national workers in the pri-vate sector will need to increase. This will require better education and training to equip workers with the skills that are in demand by the private sector. As well, allowing more mobility for expa-triate workers to move between jobs will begin to erode some of the advantages businesses see in employing expats over nationals. Companies themselves will need to do more to offer attrac-tive working conditions—on-the-job training and a greater focus on career development will help. In addition, female participation in the workforce remains far too low in most GCC countries. Wom-en in the region are as well educated as men and bringing more females into the workforce will help boost productivity and growth.

Finally, governments can do more to support the private sector and the tradables sector in particu-lar. Growth payoffs are likely to come from mar-ket reforms that focus on business competition, regulations and property rights. In this context, improving the business environment and reduc-

ing trade barriers (including in the service sector) is likely to help boost competition. Ensuring that exporters have adequate access to finance, are supported with market information and are not hamstrung by too many restrictions will encour-age businesses to look for markets overseas rath-er than just focusing at home.

The experience of oil-exporting countries shows that it is much easier to talk about diversifica-tion and private sector growth than to actually achieve it. Nevertheless, this should not stop Gulf states from identifying the policies that can begin to move their economies toward a new growth model that provides the jobs and incomes sought by their young and growing populations.

Tim Callen is an Assistant Director of the Interna-tional Monetary Fund’s Middle East and Central Asia Department.

Change is now needed more than ever to move away from oil-led growth and toward a sustainable employ-ment-generating private sector.


24 Gulf Affairs

III. Commentary

Toward a Post-Oil Economyby Oliver Cornock

Plotting a new course for private sector development in the

Gulf states

he recent (and increasingly prolonged) downturn in oil prices has seen several pe-

rennial policy chickens return home to roost in the Gulf states. While the most pressing is un-doubtedly the region’s continuing dependence on oil-related income to fund current spend-ing, the deeper issue is the longer-term failure of most Gulf states to diversify their economies and build a thriving private sector.

The figures speak for themselves. In Saudi Ara-bia, the Middle East’s largest economy, the non-oil private sector currently accounts for about 45 percent of GDP. Yet in terms of employment, al-most 80 percent of private sector jobs are taken up by non-nationals. Similarly, in Qatar only 13 percent of the national labor force works in the private sector (the remainder are all employed by the state). Only in relatively oil-poor Bahrain

does the share of nationals working in the private sector exceed 50 percent.

As you might expect, these numbers are indica-tive of a somewhat skewed economy. Many Gulf states are still to some extent “command” econ-omies—though capitalist, they employ top-down development plans to guide the future shape of the nation and its economic growth. These plans typically entail the state’s petrodollars being funnelled into large-scale capital projects meant to diversify the economy beyond hydrocarbons. Such projects are usually labor intensive and re-quire large numbers of workers on both a short- and long-term basis.

This constant demand for manpower to convert oil dollars into fixed capital investments means that a majority of these workers—both low- and high-skilled—are imported. As a result, the num-ber of non-national workers in many Gulf states now far exceeds the number of nationals. Even in Saudi Arabia, around one-third of the population is foreign, with this figure rising to roughly 50 percent within the labor force.

The region’s nascent private sector

This petrodollar model of development tends to produce knock-on effects throughout the econo-my. In particular, it leads to two distinct kinds of private sector development. On the one hand, it produces a large and fairly undynamic non-trad-able sector that typically focuses on construction, an industry whose growth is heavily reliant on public sector commissioning and low-skilled for-eign labor. On the other hand, it also creates a tradable sector largely run by non-nationals that is focused on servicing their needs. For these rea-sons, the more dynamic parts of the private sector are geared toward what are, in theory, the most transient elements of the economy.

Over time, this state of affairs has led to a degree of path dependency. A significant wage differen-tial is already embedded between the public and private sector, with the latter effectively becom-ing a closed book to young nationals. Such is the outcome demonstrated in the recent Arab Youth Survey, where 70 percent of young Gulf citizens said they would prefer to work in the public sec-

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tor, with 51 percent citing higher wages as the main factor needed to entice them to reconsider. Thus, despite all the money governments are in-vesting in economic diversification, few nationals have joined the private sector.

A new kind of private sector?

Breaking down such an entrenched setup is a major challenge for the region’s governments. Even policies designed to mitigate poor national workforce participation (such as Nitaqat, a Saudi labor nationalization scheme for the private sec-tor) have tended to reinforce the underlying struc-ture: private sector companies are encouraged to employ a handful of “token” nationals to meet the criterion. Yet this raises costs and lowers produc-tivity for all companies involved. Neither does it address the underlying wage differential issue nor the skewed private sector growth model.

What is needed then is not greater private sec-tor participation, but rather an entirely different kind of private sector based on providing jobs geared toward the needs (and the skillsets) of the emerging national workforce. For example, in Saudi Arabia there are 185,000 young people graduating from university each year, which sug-gests that in the long term about 45 percent of the national labor force will be university graduates. Continuing with a private sector growth model that is essentially based on converting petrodol-lars into cash disbursements will offer little to these young Saudis. Already, we see that 56 per-cent of unemployed Saudis are university gradu-ates.

At the same time, there are some encouraging signs that attitudes are beginning to shift and a new course is being plotted. A number of Gulf states are starting to invest in incubator programs that allow young, would-be entrepreneurs to de-velop their own business ideas. Many of these of-ten follow a similar pattern (mobile apps are ubiq-uitous), but they do at least mark an opportunity for genuine organic growth in the private sector. Both the Qatar Science and Technology Park and Flat6Labs (which has branches in Jeddah and Abu Dhabi) are examples of this trend. As are

a number of business incubator programs that have emerged in Saudi Arabia in recent years.

No one is pretending that a thriving ecosystem of small-to-medium enterprises is going to emerge in the Gulf region overnight. But such an ecosys-tem is a prerequisite for sustainable growth. It will also be the glue that eventually holds togeth-er the often-disparate strands of heavy capital in-vestments that are currently being made across the region—including the billions being poured into new industrial parks, free zones, logistics hubs and financial centers. If these projects are to meet their promise of creating a diversified and sustainable post-oil economy for the region, then they will require a dynamic private sector along-side them to do so.

Oliver Cornock is the Editor-in-Chief of the Oxford Business Group.

No one is pretending that a thriving ecosystem of small-to-medium enter-prises is going to emerge in the Gulf region overnight.


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III. Commentary

The Gulf’s Booming Tourism Sector

by Hassan Al IbrahimIt might be key to the region’s

economic diversification

uch has changed in the two years since Qa-tar applied to host the official 2017 World

Tourism Day celebrations, which will be held this year under the theme of “Sustainable Tour-ism – a Tool for Development.” The bid was made in late 2015, when a new economic reality based on sustainable tourism was first being formed in the Gulf, even though its features were not quite clear. This year, with the celebrations upon us, this theme could not be more fitting for Qatar and its neighbors.

Tourism’s growing importance

The Gulf Cooperation Council (GCC) states’ ac-tive pursuit of sustainable revenue sources be-gan with the advent of the new millennium—these countries knew long before then that they

needed to diversify their economies and invest more in education, health, real estate, transport and media. Tourism only emerged as a priority sector when it proved its resilience in the face of the global economic shockwaves that began in 2008. Today, Gulf countries are competing as fiercely as any other traditional destination for more than one billion tourists who are traveling in search of something new and authentic.

Gulf states have also recognized that tourism is a way of achieving social and cultural sustainabili-ty. In particular, tourism provides a way for us to celebrate and perpetuate our culture, and it helps build bridges of understanding in a world that is plagued by misperceptions. If that sounds too idealistic, consider the UNWTO’s World Tourism Barometer in 2016, which showed a 3.9 percent growth in international tourist arrivals in a year when security fears worldwide rose dramatically.

Dubai has seen the most success with regards to tourism, nearly crossing the 15 million visi-tors’ threshold last year and eyeing 20 million by 2020. Oman’s growth has been slower but more far-sighted, with the Sultanate already working toward a tourism vision and strategy through to 2040. Many had thought that Saudi Arabia would not join this wave due to its more conser-vative outlook. But in 2016, the kingdom released an ambitious 2030 vision that charts a pathway for stimulating domestic and intra-GCC tourism as part of its economic diversification strategy. Saudi is now even the first country in the re-gion to host a YouTube Festival, which attract-ed thousands of visitors this year. Meanwhile, in Qatar the government has identified tourism as an important means to diversifying the national economy. While the tourism sector is still nascent there, this commitment to tourism offers exciting opportunities for both Qatari and foreign inves-tors to create cultural products and services that enhance the travel experience.

Nonetheless, it’s worth remembering that the process of developing a nation’s tourism sector is more nuanced and challenging than it is for many

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other sectors. Tourism is unique in that it cannot grow on its own—it relies on ancillary sectors to provide the infrastructure, policies and human capital needed for growth. The tourism industry also requires significant private sector involve-ment to develop products and services that reflect a country’s socio-economic needs, its culture and its heritage.

Private sector challenges and policymak-ing solutions

Perhaps the largest and most common complaint in most of the Arab world is at the policy and reg-ulatory level. Red tape adds heavy burdens to an already-risky process of setting up a business. Entrepreneurs who want to venture into tourism often find themselves requiring paperwork from four or five different government entities, because a tourism business can be classified as cultural, educational or any other type from the wide array of fields that tourism overlaps with. In addition, there are the security, immigration and customs permits that are required and often difficult to ob-tain.

That being said, Gulf states have been among the first in the region to fast-track into the digital and e-government era. They have created one-stop shops that facilitate the licensing and license re-newal processes for businesses, which has elim-inated the bureaucratic hurdles that prevent in-vestors from considering tourism as a business opportunity.

While recent economic downturns have provided a catalyst for investing in tourism, many prospec-tive products and services still face delays due to the lack of land earmarked for tourism projects. Businesses that do not require land face other roadblocks as well. Gulf policymakers should therefore provide incentives for investors to es-tablish businesses and thus help to scale up the tourism sector. Tax exemptions and lower inter-est rates from banks would be a good place to start. As would offering exemptions to laws that prohibit 100 percent foreign ownership, which in

turn would encourage international businesses to open foreign branches. Many tourism sub-sec-tors require international expertise, and easing restrictions would help attract the needed top-tal-ent.

Once tourism products have been created, it is imperative for government entities to put a spot-light on the products that the private sector has invested in. Promotional entities must recognize that it is not possible to promote a destination without promoting all the myriad components that it is made up of—whether products, services or hospitality establishments.

Planning with the private sector

The key to addressing all of these tourism-related challenges is to involve the private sector in the most important phase of all: planning. It is not enough for policymakers to make plans with the private sector’s needs in mind—they must be ful-ly engaged with from the outset. This will allow their voices to be heard and their challenges—which are specific to each market and field—to be understood. Most critically, it will give the private sector a bigger stake in the industry, which will encourage a better and more efficient partnership with government and policymakers. Working to-gether, the public and private sectors may even help define what each tourism destination will be known for in the decades to come.

Hassan Al Ibrahim is the Chief Tourism Develop-ment Offcer at the Qatar Tourism Authority.

Perhaps the largest and most common complaint in most of the Arab world is at the policy and regulatory level.


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III. Commentary

The Case for a New Economic Model

in Omanby Yousuf Al BalushiPromoting private sector-led

inclusive growth

he Sultanate of Oman, like other Gulf Co-operation Council (GCC) countries, has

experienced robust economic growth over the last four decades under a state-led development model. But a number of challenges lie ahead, including the need to create adequate employ-ment opportunities for Omani nationals, en-sure high economic growth-rates are sustained and secure enough funds to cover future devel-opment projects. The private sector can play a major role in meeting these challenges, mainly through reducing the government’s reliance on oil revenues, diversifying the economy and fur-ther developing national human capital.

Over several decades, the Omani government has provided significant support to the private

sector in terms of infrastructure development, various forms of financial incentives, erecting a business-friendly legal framework and encourag-ing free competition to stimulate innovation. Yet Oman, much like other GCC countries, still has a weak and somewhat inefficient private sector that is largely dependent on the government.

The private sector in Oman is mostly charac-terized by small businesses that are owned by individuals or families, which typically offer low-wage and low-skill employment. This has led to a fragmented private sector that lacks the financial means and skills to do business on a large scale. In fact, private sector enterprises prefer hiring migrants who accept lower wages, require less training and are subject to more flexible labor market regulations than Omani nationals.

Although the private sector in Oman continues to grow, much of this growth is driven by heavy gov-ernment subsidies of capital, energy and infra-structure (sometimes even for free). This approach provides little incentive to increase productivity, which requires investment in technology and con-ducting research and development. To this day, Oman’s private sector depends on government spending that is financed by external rents (oil and gas revenues). In turn, this makes the state the leading source of business growth.

Toward a thriving private sector

The Omani government is aware that the state-led development model can no longer be relied upon to sustain long-term growth. Shifting to-ward a private sector model will therefore be crucial—in particular, to align profit maximiza-tion incentives with the twin social objectives of shared growth and job creation for Omani nation-als. Undoubtedly, achieving this alignment will require careful coordination between the three pillars of economic development: government, business and society.

Accumulating technical know-how in the areas of production and marketing will ensure a success-

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ful transition. A variety of institutions associat-ed with finance, labor, regulation and trade are needed in this endeavor. These institutions bal-ance and protect the rights of all concerned gov-ernment bodies, private sector firms and society at large.

In the financial sector, there needs to be more emphasis on channeling domestic savings to-ward productive sectors instead of consump-tion. Equally important is to tackle the common barriers to market for businesses, including the availability of and access to affordable credit, col-lateral constraints and the inappropriateness of existing lending products. Moreover, supporting private investment in the non-oil sectors and in small-to-medium enterprises is central to devel-oping an active and more efficient private sector.

In the labor market, existing challenges have multiple dimensions. First, there is a weak link between the job market and vocational and train-ing programs, which results in job seekers who don’t have the necessary work skills. Second, the quality of basic education in Oman is poor, and is not producing students who can handle the soft skills (transferable skills like communication and problem-solving) required in most professional settings. In addition, the availability of low-cost migrant labor has driven wages in many sectors well below what nationals would willingly accept. The government should pay more attention to the balance between political stability, huge fiscal costs and its long-term commitment to recruiting the increasing numbers of job seekers.

It is also important to promote entrepreneurship and to encourage Omani nationals to choose pri-vate sector work over serving in the government. There needs to be a better balance between guar-anteeing public sector employment for nationals and ensuring the private sector is competitive and flourishing. But to meet labor market demand, the government should first re-evaluate existing manpower institutions or create new ones that encourage high technical and managerial profi-ciency.

Thinking globally

Recognizing the constraints of Oman’s small domestic market and the economic opportuni-ties globalization offers, the Omani government should focus on encouraging regional and glob-al integration in order to boost productivity and growth. By doing so, Oman can benefit in two im-portant respects. First, by importing much-need-ed ideas, technology and know-how from abroad; second, by tapping into global demand, which provides a deep elastic market for Omani goods.

Oman should also look to attract foreign direct investment (FDI) from countries that promote productivity spillovers and that have less restric-tions in partnering with domestic firms. At the same time, Omani policymakers should encour-age multinational corporations already operating within the country to establish business support centers that assist local businesses in securing in-vestors. These steps could help Oman maximize the potential benefits of FDI for competitiveness and sustainable development alike.

Dr. Yousuf Hamed Al Balushi is an economist at the “Oman 2040” Vision Project Offce.

Although the private sector in Oman continues to grow, much of this growth is driven by heavy government subsi-dies of capital, energy and infrastruc-ture (sometimes even for free).


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IV. Interviews

H.E. Sultan bin Saeed Al-Mansoori Minister of EconomyUnited Arab Emirates

Gulf Affairs: How is the Ministry of Economy coordinating with other ministries to work col-lectively toward achieving Vision 2021’s goals? Does the private sector have a role in fulfilling these objectives?

Sultan Al-Mansoori: The Ministry of Economy (MOE) is coordinating closely with all other ministries and governmental entities toward achieving the UAE Vision 2021’s goals. The world’s first “Government Accelerators,” which were launched by H.H. Sheikh Mohammed Bin Rashid Al Maktoum, vice president and prime minister of the UAE and ruler of Dubai, has been of great help in facilitating closer cooperation and coordination among governmental entities. These Government Accelerators will focus on four key areas: national agenda key performance indicators (NKPIs), policies, projects and services.

Among our ministry’s objectives under this program, one goal is to boost the number of patent applications to secure the UAE’s status as a global hub for intellectual property. This will also help enforce a legal stat-ute on venture capital, which will facilitate innovation and raise the UAE’s ranking on the Global Innova-tion Index.

We are also overseeing four of the 36 executive teams formed in 2016 to drive the UAE National Agenda

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supporting the Vision 2021 plan. Our teams will focus on economic performance, global innovation, foreign direct investment (FDI) and entrepreneurship. Furthermore, the MOE is working with other ministries on several new pieces of legislation. We are working to modify existing laws and regulations, particular-ly those related to intellectual property rights, innovation, industry, FDI, small-to-medium enterprises (SMEs), trade and aerospace, just to name a few.

Gulf Affairs: How is the UAE coping with the lower oil price environment? How do you see this affecting the business environment?

Al-Mansoori: The UAE’s economy has proven to be largely resistant to the tumultuous global economy over the last few years. Despite the oil price slump, the UAE was able to maintain its economic growth thanks mainly to the diversification policy that leaders implemented to strengthen the non-oil sector.

Our economic diversification strategy has enabled us to reduce the oil sector’s share of GDP to less than 30 percent. We intend to further raise the contribution of our non-oil sectors to 80 percent over the next few years as we continue our transition to a post-oil era. We have several income generators to lean on—from tourism to Islamic finance—should the global oil markets continue to falter.

Another important factor is that the UAE maintains an open economy that is well-connected to global markets. As a regional and international logistical, economic, financial and commercial hub, the UAE is very resilient to external economic pressures as we have a diverse source of commercial and investment flows.

There are two other strategies that will enable us to cope not only with protracted oil price declines but also with any future economic challenge. The first is our success in fostering closer cooperation between federal and local government agencies. The second is our placing a stronger emphasis on the importance of partnerships between the public and private sectors.

These factors, along with the fact that the UAE remains the Arab world’s second-largest economy and the 16th most globally competitive as per the latest World Economic Forum rankings, makes us one of the region’s top business destinations. Total FDI into the UAE reached around $10 billion in 2016, and we are preparing more policies to raise inflows further. Outflows have been excellent as well, with the UAE remaining the largest Arab foreign investor. Considering all of this, oil price declines will not significantly hamper our domestic commercial activities nor our global business and investment appeal.

Gulf Affairs: What is being done to reduce the costs of doing business and increase transpar-ency in the UAE? How is the government assisting the economic diversification processes and improving competitiveness?

Al-Mansoori: The World’s Bank’s 2016 Ease of Doing Business rankings placed the UAE among the glob-al Top 30. This ranking affirms the great progress the UAE has made in streamlining the cost and ease of doing business, as well as ensuring more transparency across all business activities and transactions.

In terms of minimizing costs, the government has focused specifically on promoting online transactions to help businesses cut down their overhead. Our numerous tax exemptions and low import duties—in addi-tion to recent reforms related to contract enforcement—have made us one of the most cost-effective busi-


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ness destinations in the world. As the “smartest” country in the region, we are an especially ideal location for connected start-ups that require advanced IT infrastructure and services at reasonable costs.

As for transparency, Transparency International has consistently ranked the UAE on top of the Arab world in terms of pursuing greater transparency and accountability. For our part, one of the MOE’s prima-ry mandates is to enable appropriate business practices and ensure the provision of services at the highest levels of quality, efficiency and transparency. Internally, we provide effective channels for our customers to enhance transparency and maximize our level of services. We also work closely with global organizations such as the World Trade Organization and the World Intellectual Property Organization to enforce trans-parency. This will continue to be a government-wide priority as we aim to become one of the world’s most transparent nations within the next few years.

Gulf Affairs: SMEs play an important role in the UAE’s economy. What steps are being taken to help grow the number of SMEs across the country?

Al-Mansoori: SMEs account for over 60 percent of the UAE’s GDP and form the foundation of the nation-al economy. We are spearheading government plans to raise this figure to 70 percent by 2021.

In addition, we have launched other successful government efforts including passing a law granting SMEs 10 percent of government awards, exempting them from bank guarantees, giving them discounts on pro-cedural fees, bringing them along during our international economic and business missions and involv-ing them in special events we hold to give them exposure. More supportive measures are being planned to maintain and strengthen the central role SMEs play in developing the UAE as a competitive knowl-edge-based and innovation-driven economy.

Gulf Affairs: There has been a proliferation of free trade zones in the UAE over the past de-cade. What is the motive behind this policy, and how do you see it contributing to the develop-ment of the country’s private sector?

Al-Mansoori: Free trade zones have sprung up across the UAE as a result of H.H. Sheikh Zayed’s desire that we avoid relying on oil alone as the main source of national income. The UAE is proud of its pioneer-ing role in promoting the free zone concept across the Arab world. In fact, we were the first country in the MENA region to build a free zone, which was the Jebel Ali Free Zone in Dubai.

Our nearly 40 world-class free zones contribute around 30 percent to our non-oil trade and symbolize the huge success of our economic diversification efforts. Among other vital functions, they connect us to the global supply chain, accommodate the entry of advanced technologies, expose the country to international best practices and serve as innovation hubs in perfect alignment with our National Innovation Strategy. All of these functions significantly benefit the development of our private sector.

We are also an active member of the World Free Zones Organization. As such, we have the support of the world’s leading free zones in nurturing a dynamic free zone community that will continue to advance our development agenda.

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Gulf Affairs: What is GOIC’s mandate and how does it support its member states? Any notable success stories from the past few years?

Abdulaziz Al-Ageel: GOIC was founded in 1976 to encourage industrial cooperation between its member states. For more than four decades now, the organization has collected sector-related data and produced industry studies, in addition to disseminating recommendations to both the private and public sector on industrial projects and policy.

To date, GOIC has published more than 485 industrial reports, 85 feasibility studies and 20 multi-cli-ent studies. It has offered consulting services to more than 37 clients in Gulf Cooperation Council (GCC) countries and organized dozens of forums and seminars. Through its Industrial Market Intelligence (IMI) portal, GOIC has also become a reliable source of information for thousands of investors and businessmen in the industrial sector.

In more recent years, GOIC has organized training sessions to help build up the capacities of businessmen and small to medium enterprises (SMEs) to successfully compete on an international level. It supported

H.E. Abdulaziz bin Hamad Al-AgeelSecretary General

Gulf Organization for Industrial Consulting (GOIC)

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building and developing the capacities of more than 1,000 individuals throughout the Gulf region through trainings, seminars, publications and awareness campaigns. In June 2012, GOIC launched the GCC in-dustrial road map and began carrying out annual assessments of the readiness of GCC countries to tran-sition toward knowledge-based economies.

For more than four decades, GOIC has been playing a major role in identifying and introducing new indus-tries and shaping general industrial policies in the Gulf. The organization also presents recommendations on the unified industrial strategy between GCC countries.

Recently, GOIC started playing an even bigger role at the private sector level within the economies of GCC countries. Moreover, the organization has played a role in the economic and social integration of the public and private sectors in the region.

Gulf Affairs: What are Gulf states currently doing to increase the rate of nationals in the pri-vate labor market?

Al-Ageel: It is obvious that GCC governments fully understand the private sector’s importance and role in economic growth. In terms of nationalization schemes, some governments have been working on support plans targeted to private sector entities that excel in training workers and providing robust insurance and benefits packages. Other efforts to attract nationals into the private sector have included offering generous salaries, retirement plans and support for promising sectors—particularly in knowledge-based industries.

Gulf Affairs: Although women are outperforming men in educational attainment in the Gulf region, they face many employment barriers. How do you explain this?

Al-Ageel: Women in the Gulf states face several challenges, including the limited presence of women in decision-making roles to support other women seeking entry into the workforce. Women also face road-blocks securing funds for their projects because of the difficulty of providing collateral to financial institu-tions. Banks see loans to women as riskier due to social restrictions that may control women’s movement and ability to work. There is also a low level of community support for women’s leadership in economic projects—particularly large-scale ones.

Nevertheless, women in the GCC are keen to establish their own projects. They are participating in differ-ent areas of the labor market and even becoming entrepreneurs themselves. Today, they play a vital and growing role in the national economies of the various Gulf states.

Gulf Affairs: In which sectors do you see the greatest potential for start-ups to succeed in? What are Gulf policymakers doing to further incentivize entrepreneurship?

Al-Ageel: Although SMEs are typically associated with the service sector, they play a crucial role in driv-ing the Gulf states’ manufacturing capacity. Even so, the industrial sector still has a lot of opportunities that can be tapped into. Targeted growth areas include railroads, construction materials, plastics, pharma-ceuticals and metals (such as aluminum).

Beyond manufacturing, the tech industry presents a lot of opportunities for SMEs. Retail, fashion and fast

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food start-ups with a “cultural dimension” are also exciting growth areas. As are the healthcare, sports and fitness, education, event management and general services areas.

As for boosting entrepreneurship, let me first note what Gulf states have already done. The UAE has established a dedicated council that determines new incentives for SMEs; Bahrain has set up Tamkeen; Kuwait established a national fund for SME development; Qatar has the Qatar Development Bank; Saudi Arabia has the Public Authority for Small and Medium Enterprises (PASME) and Oman has Sharakah.

However, GCC start-ups still face many challenges relating to investment, cash flow, the law and logistics. On the personnel front, a lack of strategic planning, decision-making, communication and financial skills often prevents small businesses from reaching their full potential.

That being said, GCC governments have encouraged multi-stakeholder firms to develop a culture of en-trepreneurship and offered assistance to venture capitalists. Support for export-oriented industries is also seen as a strong incentive for SME development. In recent years, the emergence of angel investment net-works and crowdfunding platforms have also contributed to the growth of SMEs across the region.

Gulf Affairs: With the current low oil price environment, what projections do you have for industrial growth in the short-term?

Al-Ageel: Low oil prices and poor economic conditions led the GCC states to undertake several reforms aimed at diversifying their economies and strengthening the non-oil industrial sector. The region’s gov-ernments all agree on the need to liberalize petroleum products, electricity and water markets, in addition to scraping subsidies gradually. Liberalization of these commodities will lead to the correction of market distortions. The practical result will be curbing oil consumption, encouraging energy savings, reducing pollution and easing fiscal expenditures. Actually, the low oil price environment even offers a unique op-portunity to pursue fundamental reform of the region’s basic economic structure.

It is worth mentioning that all the Gulf states have declared visions to restructure their economies. These visions share the following features: strengthening the role of knowledge-based economies, activating the role of the private sector, encouraging foreign investment and creating job opportunities for their citizens.

Finally, the recent drop in oil prices was an opportunity for comprehensive structural reforms to the econ-omies of GCC countries. These countries have had to cope with this by adopting a mixture of policies to correct the path of their economies and diversify their sources of income in the long-term, including an increase in the share of the industrial sector.

Gulf Affairs: What is the status of public-private partnerships (PPPs) and do they play a key role in economic diversification in the Gulf states?

Al-Ageel: PPP projects in the Gulf states have been mainly implemented in the water and energy sectors. I think that PPPs have the potential to play a larger role than they currently are playing in the region, if enough resources are allocated to them. Past PPP success stories include the development of the Al-Manah Independent Power Project in Oman in 1994, as well as the more recent power and water project by the Qatar General Electricity and Water Corporation (Kahramaa) in Qatar.

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Gulf Affairs: Do you think that privatization has gone far enough in the Gulf states? What do you see as the future of privatization efforts in the region?

Al-Ageel: No, privatization was not a priority for GCC governments until recently. Privatization has never been considered a favored option, as divestment from state-owned entities (SOE) are usually considered a last resort. However, changing economic realities and new fiscal challenges has put privatization on the agenda as a top priority for the region’s governments.

Recent news of privatizing Saudi Aramco, Saudi’s national hydrocarbons giant, has rekindled the privat-ization drive in the Gulf states. Privatization is seen by governments as a new source of revenue, and initial public offerings for SOEs as well as PPP projects will likely pick up over time as a result. This means that the private sector will play an even larger role in the region’s economic growth in the coming years.

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Gulf Affairs: What is KAPP’s mandate? How does it coordinate with the various related min-istries?

Mutlaq Al-Sanei: KAPP plays a major role in facilitating the private sector’s participation in the econ-omy. The Kuwaiti government founded the public-private partnership (PPP) program to promote and establish collaboration between the public and private sectors to ensure projects are well-developed and provide effective services for Kuwaiti citizens.

KAPP’s first priority is to assure all projects are operating as planned according to PPP Law 116/2014 and its executive regulations. KAPP receives competitive bids for its current projects, and all bids are thor-oughly evaluated. The rapid pace of development in Kuwait means that we have to be especially aware, perceptive and understanding of the scale of projects and their importance to the economy. For this reason, we are putting all our efforts in ensuring that KAPP projects are advancing as planned and delivering high-quality infrastructure services through partnership projects.

Mutlaq Mubarak Al-SaneiGeneral Manager

Kuwait Authority for Partnership Projects (KAPP)State of Kuwait

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Gulf Affairs: What regulations control the offerings of PPP projects?

Al-Sanei: KAPP mainly operates in accordance with Law 116/2014 and its executive regulations, which is considered the core regulating reference to full implementation of PPP projects. The Authority also refers to Law 39/2010, known formally as the Promulgating the Incorporation of Kuwaiti Joint Stock Companies to Undertake the Building and Execution of Electricity Power and Water Desalination Stations in Kuwait.

Gulf Affairs: Which financial sectors have benefited from these projects?

Al-Sanei: PPP projects are mainly beneficial to the public entities that initiated these projects. But they’re also good for both local and foreign investors, companies and financial institutions.

Gulf Affairs: What are some of the most recent success stories?

Al-Sanei: The Az-Zour North One power and water plant project is living proof of the huge success of PPP and its benefits to the economy. This plant is Kuwait’s first independently-owned power and water facility, and it falls under the first phase of the country’s Independent Water and Power Project. The project was completed on schedule and on budget.

Az-Zour North One has the capacity to generate 10 percent of Kuwait’s power requirements at peak ca-pacity (1,539 megawatts) and 20 percent of its water generation needs (107 million gallons per day). The plant is fueled by a blend of local gas and imported liquefied natural gas. The combined facility of power and water generation is Kuwait’s cleanest and most efficient source of electricity.

At the moment, KAPP is in the process of signing a contract with a consortium led by Watani Investment Capital (NBK Capital), which has been awarded the tender of managing the public share sale of 50 percent of Az-Zour North One. Half of the company’s shares will be offered to Kuwaitis through an initial public offering.

Gulf Affairs: How has KAPP contributed to private sector development in Kuwait?

Al-Sanei: KAPP has encouraged the private sector to design, build and operate huge infrastructure megaprojects in accordance with Law 116/2014. Our aim is to establish and maintain an image of Kuwait as an international business center that attracts foreign investors and financial institutions to implement and deliver massive projects in the country.

Gulf Affairs: One of KAPP’s stated objectives is to create job opportunities for Kuwaiti nation-als. How does KAPP contribute to the advancement of the Kuwaiti labor force? Al-Sanei: Kuwait boasts a large number of qualified and educated youth. Being able to participate, imple-ment and deliver mega-infrastructure projects is by itself a significant achievement for Kuwaiti nationals. Playing a major role in building their country and transforming it into an international business center should be by itself very rewarding. Thus, taking part in these ventures ensures that competitiveness will have an advantageous outcome to both the public and the private sector.

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Gulf Affairs: How does KAPP contribute to Kuwait’s economic diversification strategy, and what are the longer-term financial benefits of diversification?

Al-Sanei: PPP has become a vital fiscal tool for the Kuwaiti government, enabling it to transfer the finan-cial risks of projects onto the private sector over a long period of time. PPPs allow the treasury to spread the liabilities over the contract’s period on an accurate basis.

Kuwait’s PPP law offers citizens the opportunity to invest their savings directly into PPP projects. These are well-established mega-projects listed on the stock exchange. The stocks are priced at fair market value and have the added benefit of expanding the Kuwaiti stock market by adding mega-projects with interna-tional “know how” to it.

In the near future, PPP will be one of the key reform tools used by the government to attract foreign direct investment and to diversify the country’s economy. Doing so will go a long way toward decoupling both Kuwait’s economic growth and strength from global oil prices.


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Gulf Affairs: What is the QFC Authority’s mandate? What role does it play toward fulfilling the Qatar National Vision 2030?

Yousuf Al-Jaida: Since our inception in 2005, we continue to play a key role alongside the Ministry of Economy and Commerce to attract foreign direct investment by providing a competitive platform for firms to expand into Qatar. We also continuously support the development of a world-class financial service in-dustry, and we’ve broadened our platform to cater to the needs of the country and to reaffirm our economic attractiveness.

Today, we work hand-in-hand with the government to develop a strategy that is in line with the ambitions set out in the Qatar National Vision (QNV) 2030 and subsequent national development strategies. Our move to Msheireb Downtown Doha, the region’s cutting edge business and financial city, is further testa-ment to our commitment to transform Doha into a leading business and financial hub.

Through our offerings and unique platform, we attract a growing volume of businesses from Qatar and across the world. We also successfully enable local companies to expand beyond Qatar and tap into new markets.

Yousuf Mohamed Al-JaidaChief Executive Offcer

Qatar Financial Centre (QFC) Authority

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Another aspect of our involvement in achieving the goals of QNV 2030 is our contribution to knowledge sharing. At QFC, we attract top international firms from various market sectors, and such businesses nat-urally bring with them a vast amount of knowledge and human capital to the country. This adds value to both the growth and prosperity of the local economy.

At the same time, we don’t just look at foreign firms—we seek out local talent as well. In 2009, we estab-lished the Qatar Financial and Business Academy (QFBA), an entity fully committed to developing the business and finance skillsets of Qatar’s youth.

Gulf Affairs: How has the QFC supported the development of the local private sector? And how has it facilitated opportunities for international firms to expand into the Middle East?

Al-Jaida: As part of our efforts to further develop the local private sector, we outlined a five-year roadmap that reaffirms our objective to license 1,000 firms and create 10,000 jobs by 2022. This goal, which we are confident we will achieve, will further contribute to the development of Qatar’s private sector.

Since our inception, the QFC has played a key role in attracting some of the most influential companies across a broad range of industries. From professional services firms such as Bloomberg, Thomson Reuters and Oracle to global banking powerhouses like JPMorgan Chase, Deutsche Bank, Credit Suisse and Bar-clays.

Furthermore, our move to the region’s newest and most integrated financial city will provide even more business opportunities. In turn, this will result in allowing us to become the Middle East, North Africa and South Asia’s (MENASA) leading business and financial hub.

Last year, we launched the region’s first series of international roadshows, and these were highly success-ful. This year, we are targeting even more cities to spread the word about our platform, our country and our multibillion-dollar investment program. We are confident that our roadshows serve as an additional channel to strengthen and develop bilateral and economic relations between Qatar and select cities.

Gulf Affairs: QFC was awarded Best Financial Center in the Middle East in 2013 and Best Financial Center in the GCC in 2015 by Global Investor Magazine. What separates QFC from other financial hubs in the region?

Al-Jaida: The answer is simple: We offer firms advantages that other regional centers simply do not. We also offer firms entry into a market that is not saturated and is continuously growing. Qatar’s market strength and stability make it an ideal location for businesses looking to expand to the Middle East, Africa and Asia.

Unlike other regional platforms, QFC also allows firms to operate freely in Qatar, in any currency, and these companies benefit from an unrivaled tax-friendly regime. Firms that operate in QFC also benefit from a regulatory environment that conforms to international best practices and features an independent court with judgments enforced by the State of Qatar, regulatory tribunals and dispute-resolution centers.

44 Gulf Affairs

IV. Interviews

Gulf Affairs: Which sectors benefit the most from QFC? Where do you see the greatest poten-tial for growth over the next few years?

Al-Jaida: QFC is instrumental in opening up Qatar’s private sector and exhibiting the “best in breed” of a huge variety of businesses. For example, we attracted some of the world’s biggest management consultan-cies as well as various professional service firms that are relatively new to the region.

As a result of licensing these firms, the local market has benefited from the knowledge and expertise they bring. This will circulate throughout the economy and inspire both local youth and industry veterans to start their own ventures and widen their aspirations to create jobs rather than simply to look for them.

As for growth areas, declining oil prices have proven to be an opportunity for the non-hydrocarbon sector. The building and construction industries have directly benefited from diversification plans, contributing an estimated 2.2 percent to non-hydrocarbon GDP growth. Meanwhile, rapid population growth generat-ed strong demand for services such as finance, insurance, real estate, trade, hospitality and government services. In particular, services were the largest contributor to non-hydrocarbon GDP growth, adding an estimated 5 percent.

Over the next few years, we expect both the non-hydrocarbon sector and private sector to continue to con-tribute to Qatar’s growth. We expect to see more financial consultancies, management consultancies and professional services set up shop here.

Gulf Affairs: How do you see low oil prices and associated fiscal reforms impacting the busi-ness environment in Qatar?

Al-Jaida: At a time when many countries face uncertain economic conditions, Qatar’s economy remains stable. This is the result of a few factors: the large budget surpluses accumulated over the past five years, the comparatively low per barrel oil price used for budget forecasts and an era of fiscal discipline beginning in 2013 (when H. H. Sheikh Tamim became emir in 2013) that predated the oil price drop. Investment in infrastructure and economic diversification in Qatar is continuing as a result, and the government has not announced any plans to curb spending in these areas.

Naturally, government spending creates a wider range of funding and investment opportunities for the private sector—including project finance, professional services and bond and sukuk issuance. The demand is still there and we are witnessing growing interest from foreign firms in the health, education, technolo-gy, infrastructure, private banking and wealth management sectors.

It is important to note that while other oil-exporting countries in the Middle East and North Africa have recorded an average growth rate of 2.4 percent, Qatar’s GDP grew by about 3 percent despite the oil price drop. This serves as proof of Qatar’s efforts to diversify away from the hydrocarbon sector.

Moreover, this growth has been coupled with global rating agencies expressing continued high level con-fidence in Qatar’s economy. Most recently, the S&P gave Qatar a AA long-term and a A-1+ short-term rating. As well, the global credit rating agency Capital Intelligence (CI) expressed confidence in both Qa-tar’s long-term foreign and local currency with a AA- rating. CI also upgraded its outlook from “negative”

45

IV. Interviews

to “stable” as a result of Qatar’s economic resilience amid low hydrocarbon prices. This can be seen in the continuation of positive economic growth and the maintenance of comfortable fiscal and external buffers.

Gulf Affairs: In 2016, Qatar issued a record $9 billion in bonds. What can you tell us about the country’s development in the debt market?

Al-Jaida: Both Qatar’s minister of finance and QFC’s chairman, H.E. Ali Sherif Al-Emadi, announced earlier this year that we are unlikely to see Qatar issue debt in 2017 given that oil prices are close to break-even. Personally, I also do not anticipate that Qatar will tap into the debt market this year.

In any case, the fact that Qatar was able to issue debt bonds of this magnitude is indeed impressive. It shows that international markets still have an appetite for high-quality papers from the region. While it is true that the issuance was the largest in the region at the time, it is important to note that these were different times that required significant measures.

This year, Qatar’s fiscal deficit is projected to fall to 5 percent of GDP, or $8.7 billion. Forecasts suggest the deficit will shrink further through 2019 due to increasing hydrocarbon receipts and the ongoing consolida-tion of current spending.

It is also important to restate the QIA’s buffer both in terms of the size of its assets and the investment income it provides. QIA’s assets currently stand at $335 billion, and can be drawn upon to finance any hypothetical deficits in the future.

Gulf Affairs: In the near future, what’s the outlook for initial public offerings (IPOs) in Qatar?

Al-Jaida: In a major milestone, 2016 saw the QFC-licensed Qatar First Bank become the first listing on the Qatar Stock Exchange. Looking forward, around eight QFC-licensed companies have already ex-pressed their interest to publicly list their shares. We also expect to list two exchange-traded funds this year, one conventional and another Islamic.

On a more regional level, we expect corporations and institutions to wait for better macroeconomic data before entering the market. Corporate issuers would likely look for leadership from larger firms to confirm positive trends for flotation. Many are eyeing the much-anticipated IPO of Aramco, which should provide much-needed confidence for businesses in the region.


46 Gulf Affairs

V. Timeline

Select Private Sector Developments Across the GCC Since 2010

2010

2011

The Salman Industrial City is opened and it offers new venture opportunities for investments and private sector partnerships, including Bahrain International Investment Park, Bahrain Investment Wharf and Hidd Industrial Zone.

The UAE government launches its Vision 2021 program. It sets out the key themes for sustainable socio-economic development and calls for a shift toward developing a knowledge-based economy.

February: Kuwait Law 7/2010 establishes the Capital Markets Authority as a regulator responsible for supervising the state’s capital markets.

August: Qatar enacts its first comprehensive e-Transactions and e-Commerce law.

Ras al Khaimah’s ceramics industry continues to grow. The RAK Ceramics firm becomes the world’s largest produc-er by volume; in 2011, the company turned out 117 million sq. meters of tiles.

Saudi Arabia launches Nitaqat, a workforce nationalization program.

May: Sultan Qaboos bin Said Al Said issues a decree allowing for the establishment of Islamic financial institutions in Oman. Until then, the Sultanate had been the only Gulf state without Islamic banks.

2012

2013

July: Bahrain enacts Law 36/2012. The legislation covers labor law and results in many positives for the private sector.

September: Operations commence at Abu Dhabi’s newest port, giving the Emirate one of the largest and most hi-tech maritime cargo handling facilities in the region. Named the Khalifa Port Container Terminal—located 40 minutes’ drive northeast of the capital—it was developed by the Abu Dhabi Ports Company (ADPC) and is operated by Abu Dhabi Terminals (ADT).

Qatar Airways becomes a fully state-owned enterprise. Previously, 50 percent of the company’s shares were con-trolled by private stakeholders.

Sultan Qaboos bin Said Al Said issues a decree to establish the main committee for the Oman Vision 2040 program, a socio-economic blueprint for development.

Kuwait enacts Law 98/2013 to establish the Kuwait Direct Investment Promotion Authority that will promote direct investment.

April: Kuwait enacts Law 98/2013 to establish the National Fund for SME Development. The fund will finance up to 80 percent of the required capital for feasible projects submitted by Kuwaiti nationals.

2014

2015

47

V. Timeline

Qatar outsources its five health centers for migrant workers to the Qatar Red Crescent Society (QRCS). The Su-preme Council of Health’s (SCH) plans to further expand its outsourced services to migrants.

July: Kuwait enacts Law 116/2014 establishing the Kuwait Authority for Partnership Projects, which replaces the Partnerships Technical Bureau. The new law facilitates the procurement of public-private partnerships (PPP) proj-ects and updates the legal framework to meet international standards.

November: Dubai launches its tram services. Together with the Dubai Metro, both modes of transport enhance the commercial and touristic activity in the city.

Qatar enacts a new Commercial Companies Law replacing the 2002 version.

Oman approves a measure to double the price of natural gas provided to companies, from $1.50 to $3 per one million British thermal units. The move follows the steep drop in oil prices that began in 2014.

Saudi Arabia introduces market-focused legal reforms via the Saudi Company Law. The law improves the ease of incorporation and establishes additional reforms in the area of corporate governance.

The Central Bank of Oman introduces a requirement that all banks allocate at least 5 percent of their total loan-books to SMEs by year’s end. The measure follows a study showing that access to credit was the most significant challenge for SMEs.

April: The UAE issues a long-awaited law that eases existing rules for initial public offerings (IPOs), paving the way for more listings on the main domestic stock exchanges. The new law lowers the minimum free float from 55 to 30 percent for companies considering an IPO. The previous threshold was a stumbling block for companies reluctant to sell a majority stake in their businesses.

Bahrain enacts Cabinet Resolutions no. 49 and no. 50 to further liberalize foreign ownership regulations, opening up 94 new business activities to 100 percent foreign ownership. The areas cover information and communications technology, metals casting, air freight and oil and gas services.

Saudi Arabia gradually pursues subsidy reforms throughout the year, affecting a number of industries and services.

April: A new survey is released in Kuwait indicating that 58 percent of unemployed nationals are unwilling to work in the private sector.

April: Saudi Arabia announces the launch of Vision 2030, a major economic transformation and diversification road-map covering the public and private sectors.

2016


October: Dubai opens the Al-Maktoum International Airport, one of the world’s largest. It has five runways that will handle up to 160 million passengers and 12 million cargo tons. The airport is located next to the Dubai Jebel Ali Free Zone, a major shipping terminal and one of the world’s largest harbors.

November: Dubai wins its bid to host the World Expo 2020.

48 Gulf Affairs

V. Timeline

Qatar’s banks saw a massive growth in private sector deposits, increasing from QR 5 to 361.9 billion by February. Total domestic bank loans and credit decreased by QR 2.1 billion to reach QR 438.5 billion.

Qatar plans to introduce a new law governing PPPs. The law will particularly focus on projects related to funding the 2022 FIFA World Cup programs.

Oman announces a new PPP law.

Petroleum Development Oman signs a $1.2 billion deal with Japan’s Nippon Steel & Sumitomo Metal (NSSM) to further develop the southern port of Duqm.

January: Kuwait unveils Vision 2035 with the objective of “returning” Kuwait to its role as a leading financial and business hub in the region.

February: The UAE’s central bank issues draft rules to encourage banks to lend more to SMEs. Previously, some banks had raised lending fees to the private sector or withheld loans to some companies due to issues with bad debt.

April: Bahrain introduces new “flexible” work permits. These allow undocumented migrants to work legally in Bah-rain.

April: Saudi Arabia announces the National Transformation Program (2020), a first step toward implementing the Vision 2030 on an institutional and market level.

May: Bahrain launches the Sijilat Commercial Registration Portal, which will allow Bahrain to become the easiest place to start a business in the Gulf region.

May: Saudi Arabia carries out restructuring and consolidation in its public sector. A number of departments are merged under the Minister of Energy, Industrial and Minerals (MEIM).

June: Oman raises $2.5 billion from its first international bond sale since 1997.

September: Kuwait’s Ministry of Commerce and Industry launches the Business Center. The center aims to reduce the time needed to issue a business license by housing several government bodies in a one-stop shop.

September: Saudi Arabia introduces a new insolvency law. The law is meant to address longstanding issues in the way insolvency proceedings are handled.

September: The UAE cabinet approves the final draft of the Federal Bankruptcy Law. Unserviced debt will no longer lead to jail time, legislation that is expected to limit the number of small business owners who have fled the country in recent years.

September: The UAE is named the MENA region’s most competitive economy. It is also ranked 16th globally accord-ing to the World Economic Forum (WEF).

September: Oman launches Tanfeedh, the national program for enhancing economic diversification.

October: Saudi Arabia establishes the Small and Medium Enterprise Authority, bringing a majority of SME support programs under its oversight.

2017

Call for ArticlesForeign Policy Trends in the GCC States

Submission due date: Friday, July 7 , 2017Word count: 1,000 – 1,500 words

Gulf Affairs invites scholars to submit original analytical articles for its upcoming issue on the theme “Foreign Policy Trends in the GCC States.”

Gulf Affairs is a journal founded by the Oxford Gulf & Arabian Peninsula Studies Forum (OxGAPS), a University of Oxford-based platform. The journal is dedicated to furthering knowledge and dialogue on the pressing issues and chal-lenges facing the six member states of the Gulf Cooperation Council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Each issue focuses on a particular theme, allowing for a comprehensive discussion from various analytical perspectives and fields of study. Accepted articles are reviewed and edited prior to publication.

To capture the complexity of the various issues and challenges around foreign policies of the GCC states, articles are encouraged from a wide range of disciplinary lenses, including: Economics, Politics/Political Economy, International Relations, Security, Law, Psychology, Sociology, Anthropology, Area Studies and History. Balanced articles supported by sufficient and credible sources that offer a unique perspective on the theme will likely be accepted for publication.1

Gulf Affairs welcomes analytical articles on (though not limited to) the following areas:

Submission Guidelines: Please send articles to [email protected] by Friday, July 7, 2017. Authors whose arti-cles have been accepted for review will be notified within two weeks after the submission deadline.

• What are the key drivers of GCC foreign policy (collectively or on a state-level) in the post-Arab Spring era? How have threat perceptions changed?

• How has the role of the Gulf states in the international relations of the Middle East evolved in response to the shocks of 2003 and 2011? Is a global rebalancing underway?

• How are GCC states engaging with other sub-regional blocs and forums? How are they pursuing foreign policy objectives through international organizations (i.e. the UN, OIC and Arab League)?

• What are shared foreign policy priorities among GCC states, and how are they cooperating to tackle them? In what areas are there differences, and how are they contributing to intra-GCC tensions?

• Can new Gulf-led military alliances, especially given the GCC region’s particularly high military expendi-ture in recent years, reshape the security architecture and politics of the Middle East?

• How are changes in domestic affairs (politically or economically) within the GCC states impacting their respective foreign policies?

• Amid ongoing crises in Yemen, Syria, Iraq and Libya, how are different security and conflict resolution visions altering the relationship between Gulf states and regional or global powers?

• What role can the GCC states play in post-conflict stability, capacity building and reconstruction efforts in crisis-ridden countries across the Middle East?

• Development aid has been a cornerstone of Khaleeji soft power for decades. What are other elements of GCC soft power, and how are they furthering the region’s foreign policy objectives?

Oxford Gulf & Arabian Peninsula Studies Forum | St Antony’s College, 62 Woodstock Road, Oxford, OX2 6JF, UK

www.oxgaps.org

For citations and referencing, use Chicago Manual of Style endnotes.1

www.oxgaps.org

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