Implications for U.S. Government and Business
The Middle East Policy Council's 85th Capitol Hill Conference has concluded. The full video and unedited transcript are available below. A policy brief derived from this event can be read here. The panel, held on Tuesday, July 12, 2016, addressed the recently announced Saudi 2030 Vision and the National Transformation Plan as well as similar vision statements and plans of the UAE and other GCC states. To receive invitations to future events, click here, or follow us on Twitter and Facebook. To view our recent Capitol Hill Conferences, click here.
The following is a transcript of the eighty-fifth in a series of Capitol Hill conferences convened by the Middle East Policy Council. The meeting was held at the Russell Senate Office Building in Washington, DC, on July 12, 2016, with Richard J. Schmierer, chairman of the board of directors of the Middle East Policy Council moderating, and Thomas R. Mattair, executive director of the Middle East Policy Council, serving as discussant. The video can be accessed at www.mepc.org.
RICHARD J. SCHMIERER, Former Ambassador, Oman; Chairman of the Board of Directors, Middle East Policy Council
Good afternoon, everybody. Well, we’re certainly very, very pleased to have such an enthusiastic and large crowd here in the middle of July, so thank you all for joining us.
My name is Richard Schmierer. I’m the chairman of the board of the Middle East Policy Council, and I have the great pleasure today to moderate what, as you know, is an exceptional panel on a topic of exceptionally high interest these days.
Before we get started, I’d just like to say a few words about who we are, the Middle East Policy Council.
As you saw in the invitation, you’re attending our 85th Capitol Hill Conference. We do four a year, so if you do the math you realize we have had — we’ve been around for a while, and we’re very proud of that tradition. But Capitol Hill Conferences are one of our main activities. As I mentioned, we do four a year. We focus them on current policy issues. We hold them here on the Hill because we want to make sure that we can encourage colleagues who are working on the Hill or nearby to attend. And we’re very pleased that we have such a good audience and such good representation from people on the Hill today, as well as throughout D.C.
One of our other main activities is the Middle East Policy Journal. I think they’re probably all gone now, but the early arrivers were able to pick up a copy of our most recent issue. And that’s something we put out quarterly. Again, the name speaks for itself. It’s focused on policy issues related to the Middle East. We’re very proud of that journal, and we have a very large following of subscribers and others in various institutions that receive the journal.
And our third main activity is what we call TeachMideast. It’s an — it’s an educational program geared towards teachers and students, particularly at the high school level, concerning the Middle East because we feel it’s very important that those young people and their teachers, who need resources, get good, accurate, current information about the region — maybe today more important than ever.
So those are our three main activities. And we’re very pleased to have you here for today’s Capitol Hill Conference.
We also want to thank Senator Warner and his staff for providing us with the room to hold this Capitol Hill Conference. They’ve been great to work with, and they’re providing all the technical support. I think you’re aware from the invitation that the event is streamed live. It is also — it will be available shortly after the conference on our website. So if you — if you didn’t pick it up or if you want to recommend it to friends, you can watch it after the fact.
We have — we’re fortunate today to have four really excellent speakers, as you saw from the invitation. But before I introduce them, let me just mention procedurally, each — as each speaker speaks, you find index cards on your seat. To try to help move along the Q&A session as efficiently as possible, we ask that, as a question arises that you’d like to ask as a speaker is speaking, jot it down on the index card. And Lucy from our team will be coming around; just hold up the card at any point and Lucy will come around and collect them. My colleague Dr. Tom Mattair, our executive director, will be going through the questions, and he will be overseeing the Q&A session.
With that, let me just briefly introduce our speakers, and then we can turn it over to them. You have their bios, or at least their bios were available in the invitation and online, so I won’t go into great detail. But we happen to have four particularly knowledgeable experts on today’s topic, which is “Economic Reform and Political Risk in the GCC: Implications for U.S. Government and Business.” It’s a broad topic, but it’s obviously a very current topic.
So our first speaker will be Ford Fraker, who is the chairman of the Merrill Lynch — oh, excuse me, I have that backwards.
Our first speaker will actually be Aasim Husain, who is the deputy director of the Middle East and Central Asia Department of the International Monetary Fund. And he will be looking primarily at the implications of the oil price situation in the region and how that affects the economic plans of the countries in the GCC.
Then our second speaker will be my colleague from the Middle East Policy Council, Ford Fraker. Ford is the chairman of Merrill Lynch Kingdom — Merrill Lynch in the Kingdom of Saudi Arabia, and is also the president of the Middle East Policy Council. Ford is a former U.S. ambassador to Saudi Arabia. And he will be highlighting the key challenges, the key elements of the Saudi 2030 Vision.
Our third speaker we’re very pleased to have with us today is Edward Burton. Ed is the CEO and president of the U.S.-Saudi Arabian Business Council. And he will be focusing largely on the business opportunities and the business challenges which will be arising in Saudi Arabia and the region through the reform programs.
And then our fourth panelist is Karen Young, a colleague from the Arab Gulf States Institute in Washington, and also a non-resident fellow at the London School of Economics Middle East Centre. And Karen will also be looking at comparisons across the GCC and the different approaches to the economic reform agenda.
And then we’re very pleased to have a surprise attendee, a gentleman from Bahrain who we will ask to come up and say a few remarks following Karen’s presentation, and that is Osama Al Absi, who is the CEO of the Labour Market Regulatory Authority in Bahrain and is directly involved in Bahrain’s effort — economic reform efforts.
So, with that, let me turn it over to Aasim to give his opening remarks. Thank you.
AASIM M. HUSAIN, Deputy Director of the Middle East and Central Asia Department,
International Monetary Fund
OK. Well, thank you very much. First, thanks very much to Rich, and also to Tom, for the invitation. I am very pleased to be able to speak here at this very prestigious venue.
What I thought I’d do today in the time that was allotted to me is talk a bit, first, about what the impact of low oil prices on the GCC economies has been, talk about what policy responses the countries have taken, and what the macroeconomic implications of low oil prices are. And then what I’d like to do is turn quickly to the long-term policy vision or policy agenda in each of the six countries.
Now, I’m sure everyone or most everyone has heard about the Saudi Vision 2030. That is the one that has gotten the most attention. It’s also perhaps the most recent one to be announced. I think, rightly so, it has gotten the most attention. It is by far the largest economy in the country (sic), and in many respects this is a truly transformative or purports to be a truly transformative set of reforms. But every other country in the GCC also has the analogue of such a vision, so I thought I’d cover that in a very brief pass and talk about the implementation or the related challenges that I see in each case.
So, first, let me talk a little bit about what was happening before the oil price shock that started in the middle of 2014. The Gulf countries, as you know, were flush with oil revenue. They had all — in response to that increase in oil revenue, they had all ramped up their spending. Now, mostly this was an increase in capital spending. There is very high rates of investment in every country. But also they had increased social spending, in particular subsidies. The one type of subsidy that I most have heard about is energy subsidies, but also subsidies of other types of goods and services. And then they had also increased public employment and wages in the economies. This was, of course, a way of transferring the oil wealth to the population at large. In most countries, the large — a large proportion — in many cases, the majority — of the population, of the national population, was employed — continues to be employed by the public sector.
Now, as a result of this increase in spending, all countries were enjoying very rapid growth. For all the countries together, growth had averaged 7 percent a year for the non-oil sector over the period 2000 to 2013. So pretty high, and for a pretty long run. All the countries except Bahrain actually had surpluses going into the oil price shock. So not only were they spending more, but they were actually still managing to save a bit of it.
Along with high non-oil-sector growth, there was also pretty good job growth. But most of that job growth, as I mentioned, was in the public sector. And in the private sector, the job growth was mostly going to foreigners or to expatriates that were being hired to take up those jobs. So, in other words, the overall growth that was high was not particularly job-rich when it came to nationals’ employment, but still nationals were being employed.
Now, as you know, the oil price shock hit in the middle of 2014. Oil prices started to decline pretty rapidly, going from $110 a barrel, thereabouts, at that time to now in the high 40s. And not only have spot oil prices declined, but oil futures have declined. And in fact, even five years out, oil futures are not expected to rise much — in other words, stay around 50 (dollars) to $60 a barrel, much lower than what people had thought would be the case as early as mid-2014.
Oil export revenues for the six countries as a whole was 1.1 (trillion dollars), $1.2 trillion in 2013. And that fell to 720 billion (dollars) or will fall to 720 billion (dollars) this year, so a fall of over $400 billion in oil revenue. Total revenue, which is mostly oil — and now I’m talking about total fiscal revenue of the countries; mostly oil, but other stuff too — was about 45 percent of GDP in 2013 for all the countries, on average. This year, we’re expecting 28 percent, a pretty large fall. As a result, fiscal balances have gone into pretty big deficit, on average going from 10 percent surplus in 2013 to a deficit on average of 9 percent of GDP, in some countries quite a bit larger.
So, how are countries dealing with the oil shock? As the chart on the left indicates, they’re cutting down spending. And as the chart on the right indicates, they’re also running down buffers. So let me elaborate a little bit.
On the left, what you see is real public — or real spending growth by the public sector. And as you see, in the years before — up to 2013, spending had averaged 10 percent growth a year. Already in 2014, since the shock hit mid-year, spending growth had started to come down to about, oh, 7 (percent), 8 percent. But, as you see in 2015 and going on into 2016, spending is actually projected to contract pretty sharply, by more than 10 percent each year.
At the same time, reserves are being used up. So on the right hand side what you see is, in the years before the oil price shock, foreign exchange reserves were building at the rate of about 9 percent of GDP a year, on average, for the six countries. By 2014, already that came to almost a standstill. And last year and this year, reserves are going to be run down pretty substantially, by about 8 percent of GDP.
Now, what sorts of measures are being taken by countries? And here I’m going to focus mostly on the fiscal side, since that is by far the largest element of the reform program.
I’m getting a little bit of feedback here. Is that OK? I might have hit a button by mistake. (Pause.) OK. So sorry about that.
On the fiscal side, for 2016 what many countries are doing is cutting back capital spending sharply. Now, this is being done not only by not proceeding with new projects, but also in some cases by actually cutting back on projects that are underway — in some cases canceling projects, in other cases slowing projects down.
In addition to capital spending, another big change that’s happened is energy price reform. So I’ll exaggerate a little bit and say that in many countries oil or gasoline products were virtually free before 2014. Since then, very substantial price increases have taken place in most — in fact, in all countries for various types of petroleum products, though in most cases they’re still much lower than international levels, certainly much lower even than what we pay here and much, much lower than what, say, consumers in Europe pay. Nevertheless, this has marked a very big change. So, if you will, access to very cheap energy was virtually viewed as an entitlement until now. That has changed, and prices have increased.
A big move happened around the beginning of 2016 or the very end of 2015 in Saudi Arabia. And at almost the same time, both Oman and Bahrain also increased prices. I think moving together or right after one another was probably helpful; that one country was doing it, it probably made it easier for the other countries to do it.
Interestingly, there doesn’t appear to have been much by way of social sort of fallout from these energy price reforms, at least so far. And most countries have said that this is only the start of a longer-term reform program where energy prices are going to be raised further. In some cases, energy prices are now already being adjusted on a regular basis. I think in UAE and Oman they are following movements in international prices.
Now, as this chart shows, the two — you know, almost every country — and I think the numbers for UAE are out of date, and we will need to update them. And the reason for that is that at the time this chart was made, their budget had not yet been approved, their budget for 2016, so it’s based on old numbers. But in all of the other cases, the actual fiscal adjustment, if you will, is quite large: several percentage points of GDP. And it is especially large, as you will see, in Saudi Arabia and in Oman. I should just clarify this is in percent of non-oil GDP. In any case, in those two countries it’s especially large. Partly, this represents a very sharp compression in capital spending, but also the impact of energy price reforms in those countries.
Now, even with the large fiscal adjustment that’s already taken place — or, for that matter, what’s already in the pipeline for future years — the fiscal challenge is still daunting. So what we’ve done in this chart is taken the measures that have already been announced — not just for — that have already been taken, but that have been announced for the future. For example, the Gulf countries have all said that they will adopted a value-added tax, most likely at the beginning of 2018. Many have said that they will introduce excises or increase excises. Many have announced further energy reforms. Many have indicated that capital spending will be — will be compressed further as projects are completed. So all that is built into this so-called baseline.
And with that baseline, with all these additional measures being taken, we still will have a deficit on average of about 7 percent of GDP five years from now. And as a result, if that is — if the baseline actually materializes, public debt will still be rising five years from now, on average getting up to 45 percent of GDP.
Now, of course, public debt 45 percent of GDP is not necessarily a large number. In fact, it’s not a large number. But that is an average. In some cases, it will be quite a bit more.
Now, one other thing is, even though public debt will be that large, many countries also have large assets in sovereign wealth funds, in reserves, et cetera. So maybe we should think of it in net terms. And that’s, I think, absolutely right. But in some cases, even net debt will still be pretty high and something to keep an eye on.
So, in other words, in order to balance the fiscal books, more adjustment will be needed. Staying at a deficit of 7 percent on average five years from now is not going to be enough, and more measures will need to be taken beyond what’s already been announced.
Now, what will that mean for growth prospects for the countries? Now, very clearly, weaker government spending will mean slower overall growth. In fairness, public spending in the recent past, though it has boosted growth, has probably been of somewhat low multiplier, the reason being that much of the materials that are used for investment are imported. And so, similarly, when you don’t have that spending, imports will be lower. So it doesn’t necessarily translate into growth one-for-one, but it will translate into weaker growth. We reckon this year growth on average in the non-oil sector will go from something like 7 percent in the past to about 3 percent this year, picking up a little bit over the next few years to, say, 4 percent on average, but still a lot lower than what we have seen.
And of course, if — and this is based on the baseline consolidation that we have in mind — if more consolidation takes place, as I argue is needed, then you could have even slower growth. Similarly, if multipliers are lower than — or, sorry, are higher than what we expect, then, again, the impact on growth could be larger.
So what does that mean for jobs? Now, over the next five to six years, about 2 million youth will enter the workforce in the six countries combined, as you see in the chart. And the part shaded in red are the ones, based on current assumptions, will actually find employment — in other words, about two-thirds of them. And a good one-third might not.
And how do we come up with this estimate? What we do here is we take what we project to be non-oil-sector growth, and we use the elasticity of growth with jobs of the past and we project that forward. Now, if growth is lower than what we project, or if that elasticity changes, then of course this picture will be different. And in particular, if growth is lower than what we project, because more fiscal consolidation takes place or because multipliers are higher than we expect, then the employment challenge could be even more than this.
So what does this mean, then? This means that the historical elasticity of growth to jobs has to change. In other words, growth — even the lower growth that the Gulf countries are going to have has to be much more job-rich than in the past. And in order to have that job-rich growth, structural reforms will be needed, the economies will need to diversify, and the fiscal adjustment will need to be undertaken in a way that is as job-friendly as possible.
So, with that, let me just quickly talk a little bit about the visions that each of the countries has. And I know I’m already low on time, so I’m going to be very brief here. We can take up, you know, more in the Q&A if needed. So let me — this is in no particular order. It’s purposely not in alphabetical order, but maybe I should have done it that way. But let me start with Oman.
So Oman currently is in its ninth development plan, and the focus of policies are — is sort of guided. The Umbrella is the ninth development plan, and the ninth development plan itself is the last leg of a 25-year Vision 2030. So it covers the 25 years up to — sorry, Vision 2020, and it covers the 25 years up to 2020.
This vision and the ninth development plan very much emphasize the need for the private sector to drive growth and job creation. And the plan and the vision are underpinned by reforms to the business climate, to developing the small and medium enterprise sector, to fostering private investment, and so on.
What do I see as the main challenges in Oman? I think there the amount of fiscal adjustment that’s already being undertaken is very large, but also they need pretty significant additional fiscal adjustment to get back to budget balance. So getting that done is going to be a challenge.
There is also, you know, challenge with respect to political commitment to reform. In some cases — for example, in the foreign investment law, in the new labor law, in electricity reform — the actual technical work to guide those reforms and new legislation was completed and its ready to go, but to actually pass it, it hasn’t happened or is taking a while. And that goes to the political implementation challenge that they may face.
Let me turn very quickly to Qatar, a country that has a National Vision 2030. And this vision was revealed or approved back in 2008. It includes a $200 billion public investment program to support economic diversification of Qatar. As a result of low oil prices, they have — they have adopted very welcome reforms to increase spending efficiency, to restrain current spending, to raise fuel prices, and to start developing a medium-term fiscal framework. So all those thing are good.
I think on the challenge side, on the implementation, the areas of focus in Qatar will need to be that already in the high oil price environment, and certainly since then, projects have seen quite a bit of delays. One example is that the Doha Airport, which some of you might have had the pleasure of visiting, is very impressive, but it was open five years after initial schedule. So, you know, the implementation delays are some things — is something that has plagued Qatar.
In addition, Qatar has also gotten some awkward publicity with respect to foreign labor rights. And also, I guess one thing that many are familiar with is their bid for the 2022 World Cup. So negative publicity coming from that is another sort of potential challenge that they’re going to have to deal with.
Then we move on to the UAE. There, the vision is for 2021, which is the 50th anniversary of the UAE’s independence. There, too, the objective is economic diversification and very much private sector promotion. UAE is already the most diversified economy in the UAE (sic), and non-oil — or oil only comprises 30 percent of total exports, 40 percent of exports excluding re-exports. So, for them, I guess the challenge is to move even a step further. And they’re very much focused on promoting a knowledge-based economy, promoting innovation, and so forth.
Now, interestingly, in the case of the UAE, the fiscal adjustment challenge is actually not that large. Yes, they’re in deficit, but the deficit is not large. And over the coming years, with the reforms that are already in the pipeline, that will be basically eliminated.
I think there the issue is whether they will reach a level of fiscal surplus that’s adequate, from their perspective, to be saving for future generations. And there probably they will need to do a little bit more over the medium term.
But interestingly, they’re probably doing a little too much in the near term. And, if anything, they should probably take a little bit of an easier stance on the fiscal side in the current year.
That brings me to Bahrain, where there, too, the vision is 2030. And it, like — as in Qatar, it was launched in 2008. Again, the target is economic diversification.
We have a speaker from Bahrain, so I won’t say very much here, just to add that in Bahrain the fiscal adjustment challenge is quite large. And Bahrain, unlike many of the others, was starting off from a deficit position already before the oil price shock, and debt was already significant. So in that respect, Bahrain faces a larger fiscal adjustment challenge than the rest.
Lastly, Saudi Arabia, just a few — sorry, actually, Kuwait before Saudi Arabia. Kuwait is — has recently announced a five-year government reform program. And the government reform program covers a number of areas on the fiscal adjustment side, on the economic diversification side.
There, I think the main implementation challenge has to do with parliament and getting things through parliament. One of the reasons this five-year program was launched when it was was because electricity reform, which the government had tried to push through, got held up in parliament. It eventually did pass, but in a more diluted form. And the criticism was that this is very piecemeal. So it was in response to that that they came up with a five-year plan. So the question of how much they can push through parliament and how quickly remains to be seen.
But in Kuwait, unlike the others, they’ll already be in surplus next year. So the fiscal adjustment challenge is actually much less.
Lastly, Saudi Arabia. Sizable fiscal consolidation already underway. Energy/water prices have been — and water prices have been raised significantly, big steps for the Kingdom. Reforms to foreign investor participation in the capital market are also underway, have already been announced. So the Vision 2030 and the National Transformation Plan, at least in terms of what has been announced, are very sort of broad-ranging and encompass pretty large reforms.
The issue there will be prioritization and sequencing, you know, in a way that reduces the implementation risks. For example, you know, how should reforms be phased? Taking, you know, the corporate sector, for example, higher energy prices, higher fees on foreign labor, and cutbacks in government spending are all going to affect the corporate sector. So the question is, how do you phase that in? How — you know, and at what speed do you implement? And do you do it all together, and so on? And do you try to do everything all at once, or do you focus on one or two key areas in order to get them right?
Another example is introducing VAT and excise taxes, which is already in the pipeline. Good moves, need to be done. At the same time, if the tax authorities also start thinking about a corporate income tax, is there a risk that attention could get diverted? Is there a risk that implementation could be spread too thinly and all of it becomes more complicated? So the issue will be focusing on the important things first, getting that focus right, and getting it done.
Thank you very much. That’s all I have for now. (Applause.)
FORD M. FRAKER, Chairman, Merrill Lynch Kingdom of Saudi Arabia; Former Chairman, Kohlberg Kravis Roberts & Co. (KKR) Middle East & North Africa; Former Ambassador, Saudi Arabia; President, Middle East Policy Council
Thank you, Tom. Thank you, Rich. Thanks to all of my colleagues at the Middle East Policy Council who have worked so hard to putt his program together. It’s a great pleasure for me to be here this afternoon and to say good afternoon to everyone in the audience.
So today I’d like to talk about Saudi Vision 2030 and the National Transformation Plan. And I refer to both these things as the vision plan, so as we go along and when I say “vision plan,” that’s what I’m referring to.
And rather than to get into the minute details of the plans or the vision, all of which is available to everyone, I wanted to focus on two particular aspects. One is the importance of these proposed reforms and changes in an historical Saudi context, because I think that’s important; and also, why are these proposed reforms and changes important in terms of the overall U.S.-Saudi relationship?
So, to set the scene a little bit, Saudi Vision 2030 and the plan — Saudi plan is sponsored and promoted by His Royal Highness Prince Mohammed Bin Salman, who’s the deputy crown prince. And the plan itself calls for sweeping economic/government reforms, with deep and wide-ranging implications for business and how the government actually functions.
The prince is taking advantage of low oil prices and the resultant economic stresses to drive through an ambitious reform agenda that focuses on two particular areas. One is diversifying the economy away from overreliance on oil revenues; and, number two, eliminating government inefficiency and waste.
So how should we look at these proposed reforms and changes in terms of the Saudi historical context? And in short, the way I look at this is these are unprecedented reforms and changes. Historically, Saudi Arabia is a deeply conservative and religious society unfamiliar with change. The Al Saudi family has ruled Saudi Arabia since its inception in 1932, and their particular style of government is all the people have ever known. Decision-making in the kingdom has been referred to as a, quote, “behind closed doors process”—meaning private discussions, consultations, consensus-building all happens behind closed doors, in private, secretly—and then we’re used to have the large public announcements.
That was the old Saudi Arabia. And I think we began to see the emergence of the new Saudi Arabia when King Salman acceded to the throne in January 2015. Within the first few weeks, hundreds of royal decrees were issued: changes to many of the ministries, new ministers being appointed. And probably the most significant change is in one fell swoop he disbanded over a dozen royal commissions and replaced them with two principal councils: the Council of Political and Security Affairs, to be run by Mohammed bin Nayef, who’s the crown prince; and the Council of Economic and Development Affairs, being run by the deputy crown prince, the king’s son, Mohammed bin Salman.
And by placing his son as head of the Council on Economic and Development Affairs, he gave him the power and the mandate to embark on reforming the economy and the government. And this is what we’ve seen unfold over the last 18 months. Working with an army of consultants in Riyadh, the deputy crown prince has set about creating, building, and recently publishing his Vision 2030 and the Transformation Plan.
So now, for the first time, we’re seeing transparency and accountability rising up in the conversations in Riyadh as a critical component being used to measure competency and efficiency, both within the ministries themselves but also the ministers. And we’re hearing all sorts of expressions like KPIs and KPTs, which is consultant-speak for key performance indicators and key performance targets. And to actually be in meetings with Saudi ministers and hear them speak this speak is transformative in itself.
All of this would be an anathema to the old Saudi Arabia. So three examples of transparency and accountability I think are useful.
One is the discussion about Aramco. So, on January 4th, Prince Mohammed bin Salman gave a five-hour interview to the Financial Times in London. So let me just stop there for a moment. This is a five-hour interview, on the record, being given by a senior member of the royal family. And if we have any correspondents in the room today, going back 40 years, trying to get an on-the-record interview with a senior member of the royal family, this is almost revolutionary. And during that interview, he talked about his vision of taking Aramco public, using that valuation as a way of creating the world’s largest sovereign wealth fund. He talked about empowering women. He talked about developing many aspects of the — of the economy. This was something that the people in Saudi Arabia — indeed, all of us outside Saudi Arabia — had never actually seen before, and I think is an important step in terms of how you will see Saudi Arabia operate going forward. And this is — this is the transparency part of that.
Another example is, for the first time, the prince put all the ministers on a stage in a room, publicly available to being questioned about their priorities, their objectives, how they would see themselves being held accountable. This also had never happened before.
And the third example — Aasim mentioned this — the subsidies. So the old Saudi Arabia had a social compact which simplistically went this way: the government would say to the people you’ll get subsidized oil and gas and electricity, and you’ll get free education, and you’ll get free health care; and in return, we’ll run the place. Well, when you change that compact and you start having a different conversation with the people and you say, look, times are tough, we don’t have the revenues, we’re going to have to increase subsidies, you all are going to have to bear part of this pain, the conversation changes pretty dramatically. And conversations with the tribes, for instance, go like this. The tribes say, OK, well, fine, if you’re going to change the rules on us and we’re going to help finance you, we’re going to want a greater say in terms of the sort of laws that you pass and how we’re — how we’re governed. As some of my younger Saudi friends have said to me, you know, this sounds a little bit like no taxation without representation. These are — these are new concepts in the Kingdom, and it’s going to be very interesting to see how they — how they play out.
So how should we think about all this from the standpoint of the U.S.-Saudi relationship? My personal reaction is that, from a U.S. business standpoint — and Ed will talk about this as well — but from a U.S. business standpoint and a U.S. government standpoint, we should welcome these reforms and changes with open arms. Business opportunities for sure will increase in Saudi Arabia. Prince Mohammed bin Salman’s recent visit to the United States, in banker parlance — because I’m actually a banker and not a diplomat — was akin to a(n) investment banking roadshow trying to sell a particular investment product to the country. First stop was here in Washington, D.C. to get the political stamp of approval; then on to the West Coast and Silicon Valley to talk with the movers and the shakers there, and also to show up at their recent big investment in Uber; and then back to New York to participate in meetings with bankers, investment bankers; fund managers as well. All of this to sell Saudi Arabia — Saudi Arabia as an attractive place to invest.
So I think it does present a terrific investment opportunity for American companies for the particular reason that it’s being pushed and promoted from the highest levels. And so to have a — have a government seeking investment and seeking opportunities to grow the business environment is a — is a big deal, I believe.
A specific example of how this is actually working inside the Kingdom, and I think shows their serious intent, is what they’ve done with the Ministry of Commerce. It used to be called the Ministry of Commerce and Industry. It’s now called the Ministry of Commerce and Investment, and by investment they mean foreign direct investment into the country. So you now, for the first time, have a ministry — have a minister of commerce who’s not only responsible for commerce inside the Kingdom, but also for the process of attracting foreign investment into the Kingdom.
And the other thing they’ve done to emphasize that is they’ve taken the Saudi Arabian Government (sic; General) Investment Authority, which was the previous one-stop-shopping center for all foreigners who wanted to invest in the Kingdom, they’ve taken SAGIA and they’ve rolled it underneath the minister’s wing. So, for the first time, you have a minister of commerce who has all the levers of power to make investment in Saudi Arabia work, and I think that’s an important point to make.
The other thing I should say from a personal standpoint is that, to any former ambassador to Saudi Arabia, and I’m sure the current ambassador, all this is music to our ears. One of the biggest responsibilities an ambassador has is promoting the bilateral trade relations between countries. And to have this kind of emphasis and impetus put behind this effort at the most senior levels in the government I think is a — is a very important signal.
From a U.S. government perspective, so again, I think the U.S. government should be watching this and be very, very positive and happy about what they’re seeing. The U.S. government clearly has a stake in a more open, modern, and enlightened approach to business and government in Saudi Arabia. And from my perspective, they should be actively — proactively encouraging and supporting this.
One of the benefits of transferring to a new Saudi Arabia concept is you’ll also be able to have more productive conversations on a series of previously very delicate issues like women’s rights and labor — conversations that will be different today than they could have been yesterday in the old Saudi Arabia. And I think that’s — that will be very positive.
And I think a final point, which I could spend an awful lot of time on, is that the U.S. government has important strategic interests in seeing a stable and prosperous Saudi Arabia, given our deep and broad mutual engagement in the areas of military, intelligence and counterterrorism. For anyone who hasn’t been in a coma over the last 40 years, the Middle East is an unstable place, and there are lots of issues. So, from a U.S. policy standpoint, supporting our allies in the region — and that means economically as well as politically — it’s a — it’s a big part of what we should be — what we should be pushing for.
All of this argues, I believe, for the U.S. government proactively supporting the prince in his efforts. And we should be seeing him as an important future leader for new Saudi Arabia.
Now, a presentation like this probably raises more questions than it has answers. And when you look at Saudi Vision 2030 and the Transformation Plan — and we’ve already heard issues about implementation, what are the implementation risks, how is it all going to work out, how will all of this be accepted by the public as a whole, are there social implications — we could be here for many hours talking about many of these topics. And I’m happy in the Q&A section to try and address some of them.
But if there’s one message I would like you all to take away today, it’s this, is that we’re seeing the emergence of a new Saudi Arabia, and we all should be doing everything we can to support it. So thank you. (Applause.)
EDWARD BURTON, CEO & President, U.S.-Saudi Arabian Business Council
Good afternoon, everyone. I want to thank Rich and Thomas for the opportunity to be with you today.
As I am with the other panelists, I am particularly honored to share the dais with former Ambassador Ford Fraker. Equally as honored to be in the room with former Ambassador Jim Smith. I’ve spent most of my professional career serving American business interests abroad, and I can easily recognize champions of American business interests. And although I served two other ambassadors while I was at the embassy in Riyadh, you will never find two Ambassadors that have been more important to the business community during their tenure than Ambassadors Smith and Fraker. So I’m very honored to be with them today, and with you.
What I’d like to do in the minutes allotted me is to just to add a bit more contour to Vision 2030, but I want to save the bulk of my presentation — which should be under 10 minutes — to talk about what I do every day and what we do at the U.S.-Saudi Arabian Business Council, is focus on the opportunities for business as a result of Vision 2030 and the Transformation Plan.
The Vision 2030, adopted as a methodology for — and a roadmap for economic development and action in the Kingdom, it identifies general directives, policies and objectives. Council of Ministers is tasked with implementing this plan. And, as Ambassador Fraker had indicated, the chairman of CEDA, the Council of Economic Development Affairs, the engine of Vision 2030, and the implementation instrument, which is the National Transformation Program, is in CEDA’s hands. There’s a lot of moving parts here, and I would urge you to look at that plan if you are interested in Saudi Arabia and the way forward for the Kingdom.
It is an unprecedented move by the government to completely restructure government and reorder how it operates. It is a move to accelerate government decision-making and increase not only government productivity, but also efficiency — how government operates.
Privatization is a big component of Vision 2030 and the way forward economically. One of the most exciting aspects of the plan to American business audiences is the plan to privatize 5 percent of Saudi Aramco. There are plenty of questions regarding how that’s going to happen and the way forward there chronologically over the next year to two years.
What that will do with the Public Investment Fund, which is the public investing arm of the government, moving it from its current assets of 160 billion to trillions after the privatization of Saudi Aramco and other privatizations in other industries. And it will end up with a strategic transformation of Saudi Aramco. It already started its move from basically an upstream company, moving to downstream, and forwarding those global interests in downstream and related industries, and moving forward even faster.
The — strategic partnerships is also an important part of Vision 2030, and the government’s intention to have public-private partnerships really be a mechanism to take a lot of the assets that are currently on the government’s books and have them more shouldered by the private sector.
The initial public offering, as I said, will be — hopefully will be available 2017, some say 2018. That’s still in the works.
The goals. Saudi Arabia, as I’ll have in a — in a future slide here, Saudi Arabia is a high spender on military equipment and services. Currently, only 2 percent of military apparatus in Saudi Arabia is localized, produced locally. There are only seven companies and two research centers in Saudi Arabia that are devoted to the military industry. What they would like to do, and what they intend to do, and are well on their way to do, is to have 50 percent of foreign military sales into the Kingdom be shouldered by local manufacturing.
They want to increase the share of GDP generated by the private sector to 65 percent. It’s now 40 percent.
They want to lower the unemployment rate, which now stands over 11 ½ percent, to 7 percent.
And they want to increase their labor force participation by women from the current 22 percent to 30 percent.
Life expectancy now is about 74 years. They want to increase that, with the work that they’re about, to 80 years.
And umrah visitors, now 8 million; they want to move that to 30 million.
As I said, Saudi Arabia spends a lot of money on defense. Currently spends $87 billion on defense and security — that was last year’s figures — making it the third-largest spender in the world.
Vision 2030, as I said, aims to promote the growth of a local, domestic defense industry. It remains a major defense supplier — the U.S. remains a major defense supplier to Saudi Arabia, with $97 billion in active and open foreign military sales. The Defense Initiative, $50 billion in new spending underway; the goal is to increase personnel strength and expand bases.
Health care. It’s a key sector in Saudi Arabia. Unfortunately, the Saudis suffer from a lot of maladies. They have one of the highest diabetes incidence rates, respiratory diseases. So it’s a big priority with the government. What the government wants to do is to allow the growth of the industry to feed employment in the Kingdom. It seeks to address widespread health issues — as I said, obesity, respiratory diseases. 2016 budget allocates $28 billion for health and social development spending. New hospitals are under construction across the Kingdom. And the fastest-growing sector in the medical/health care industry is the private sector and the construction of privately-owned hospitals and clinics.
So there are a lot of U.S. companies looking at Saudi Arabia, particularly with a view to forming joint ventures with Saudi companies to handle many of the public tenders in this area. John(s) Hopkins and Saudi Aramco formed their joint venture a number of years ago, and that’s going well.
Market for medical devices is $2 billion. Imports represent 90 percent of the market. So 90 percent of medical devices are not manufactured locally, which the government wants to move into, but supplied from overseas sources.
And Saudi Arabia is the largest ICT market in the Middle East. ICT spending has grown over 10 percent annually, to reach $7.3 billion in 2014. The IT services market is established to reach — is expected to reach $2.76 billion total value by the end of 2016, and consumer demand for ICT runs unabated. Products and services are in high demand in the Kingdom. Mobile telecommunications penetration rate is 167 percent. It’s not unusual, if you’ve ever visited Riyadh and been in business meetings, to have your partner or your business associate have two or three phones, sometimes going off all at the same time. Fixed broadband internet access has a penetration rate of 68 percent. And Saudi Arabia has the highest social media usage rates in the region, and the highest Twitter user rate as a percentage of total internet users in the world. So young Saudis are connected, and ICT is a big market.
Vision 2030 has eight sectors, based upon the McKinsey Group. And they include mining, manufacturing, construction, health care, retail, petrochemicals, and a number of others that the government has targeted as high-growth industries and is going to rely on in terms of getting the young Saudis employed. Saudi Arabia, 60 percent of the population is below the age of 30. So the demographics have instilled a high sense of urgency in terms of government growth.
You know, I’m going to be unabashed and promote my book, particularly since it’s my first one — (laughter) — and took a while birthing, so I’m pretty proud of it. And I’m more proud of it because of the theme.
I was allowed access to some of the most well-known family businesses in Saudi Arabia. These are global businesses. So I took that opportunity to highlight many of these companies in the book. I talk about the last 25 years, 30 years of national development, economic development in the Kingdom. But I had the most fun in interviewing these businesses, and I spend a substantial portion of the book talking about the new generation.
Saudi Arabia and the future of Saudi Arabia, sounds axiomatic, but it belongs to young Saudis. And I spend a big portion of the book interviewing young Saudi entrepreneurs and talking about the challenges that they face. These are the new Al Zamils, the Allianz, the — I mean, these are the seeds from which the next generation of family-owned businesses — global companies, hopefully — will spring from. And it is — Vision 2030 is the roadmap, the blueprint that they have to follow to get there. So available in October. Available now for pre-purchase. (Laughter.)
Thank you. (Applause.)
KAREN E. YOUNG, Senior Resident Scholar, Arab Gulf States Institute; Non-Resident Fellow, London School of Economics Middle East Centre (MEC)
Great. Well, thank you. Thank you very much to the Middle East Policy Council for the invitation. It’s good to be with you all today.
I’m a political scientist by training. I’m a comparativist. So I want to give you a little bit of a picture of comparative political economy of economic reforms across the GCC right now.
And one thing that we know about structural reforms is one size doesn’t fit all; that the results often take a long time to be positive, anyway; and that it’s not a guarantee. And this is what economists like Dani Rodrik have been writing about lately. And I think it’s a really important lesson because the short-term goals and the long-term goals could potentially be in conflict for the GCC states. So there’s a lot at stake right now.
Sorry. I’m having trouble getting it. Sorry, I’m not able to go to the next slide. I’m moving. Hold on. We might have to go back to the original.
(Off-side conversation.) Is there next one going? That was the problem. There, all right. We’re on. Thank you.
So the first slide I want to share with you, it’s really just a point about diversity among the GCC states in terms of their fiscal positions. And break-even oil prices are not an exact science, just as predicting oil prices is never an exact science. But it does, I think, show you that there is a different resource dependency among the GCC states. And so that gives them different amounts of leverage and flexibility right now. So for Saudi Arabia, for Oman, they’re in more difficult positions than some of their neighbors, as Aasim mentioned for us earlier.
As he also mentioned, all of the GCC states right now are facing fiscal deficits to the tune of about 10 percent of GDP across the region. What that means is there are going to be different opportunities for reform, there are going to be different mechanisms and plans. And they’re not all going to be successful, right? And that’s because these states have different resources and different access to capital. So the big trend right now is a rise in government debt issues, in bond issues. So Gulf States are — you know, in a global sense, they have pretty good access to capital. They’re not heavily indebted. I mean, we probably could take a lesson from them here in the United States in terms of government debt. But in very different measures.
So if we look at a country like Bahrain, Bahrain is in heavier debt than its neighbors, and will have more difficulty servicing that debt. Bahrain has also been downgraded recently by credit rating services. So that means the access to that capital becomes more expensive. It’s still accessible, but it’s more expensive. Saudi Arabia is very actively pursuing both bond issues and loans from corporates, from big international banks. This is interesting because at this moment, if you follow bond markets globally, there’s not a very high yield on most government debt all over the world. The only place if you would like to make some money by being a lender to a government it’s a good thing to have Gulf clients, right, because they’re willing to pay more for interest on the bonds that they issue.
And so this is going to create some interesting dynamics. As I said, the short-term versus the long-term goals. The short-term goal is access to capital, right? That’s going to help create a patch to the fiscal deficit. It’s going to allow governments to continue the outlays in government spending in terms of public sector wages, in terms of health care, education services that they provide. But in the long term, it’s not really sustainable. One reason is that we’ve got very low productivity across the Gulf. So even if we create more jobs within the private sector, it’s not clear that those jobs are going to be generating lots of wealth, right?
The other thing that’s true is that all of the GCC states, their currencies are tied in some way to the U.S. dollar. So if the dollar is getting stronger, you have to repay you debt in dollars, but we’re not seeing lots of duration of economic growth, that debt becomes more expensive over time. So in the short term the Gulf States are fine. They can access capital. They can meet their obligations. In the long term, 10 years out, if oil prices stay the way they are the economies are not diversified, I think we have more of a serious problem.
I think it’s important also to think about — a little bit historically about where this wealth has come from, what happened in the most recent oil boom. So from 2003 to 2014, this is an enormous period of generation of wealth across the GCC. And what states did with this money is amazing. It’s a great success story in state-led development, in economic development history. They built state institutions. They built militaries. They built health care systems, educational systems. And it’s really been miraculous, and very different form the last oil boom of the 1970s, where public sector spending was much lower.
There’s also variation across the Gulf States in what they did with this wealth. So some states were better at creating rainy day funds. The Kuwaitis were very good at putting some money aside for a moment like this. Other states invested more in the non-oil sector, and that’s paying off, that benefit, right now for some more than others. But I think it’s important to know that this experience is different from the 1970s because populations are different, the demographics of the Gulf are very different now than they were in the past oil boom.
Who lives in the Gulf now? It’s mostly people like me, expatriates, migrants, right? So Gulf nationals in most Gulf states are minorities within their own countries. The population explosion has been among nationals, but especially among non-nationals. So the Gulf as a place and the kind of services and, you know, infrastructure that states provide are being provided not just to citizens but to residents as well.
So in that — in my work at the Arab Gulf States Institute, I’ve been tracking the economic reforms that are coming forward across the Gulf. And we’re calling in the Gulf economic barometer. So I encourage you to go our website and check it out. But basically what we’re seeing is a bit of copycat reforms, which is useful because it makes it easier for a government to implement a reform when you can say, look, my neighbor had to do it too. So in terms of domestic politics, that has been a good idea.
So, as Aasim mentioned, fuel subsidy reduction has been pretty much across the board, as well as reduction in subsidies for energy and electricity. We’re also seeing a lot of consolidation within government-related entities, state-owned entities, a lot of restructurings. And this is good. This is cost saving. This is what should have been done maybe 10 years ago. But it will mean probably reduction in staff. And we’re already seeing reduction in, for example, health care benefits and the perks that go to many people who work within state-related entities. Oman has actually cut the most in terms of its public sector and state-related entity benefits.
As I mentioned, in monetary policy measures there have been a lot of bond issues in the last six months across the Gulf States. And I think the loans are coming next. So Saudi Arabia’s getting ready to place some very large loans. We’re seeing the issuance also of Islamic bonds, of sukuks, which is very interesting. There was a very big loan placement last week from the Omani National Petroleum Company, a $4 billion loan. That will happen once. I don’t imagine that that can happen again in two years. This is a moment for Gulf States to access capital.
General government non-oil revenues, the percent of non-oil GDP. Basically, as I said, there’s a lot of variation in diversification of economies across the GCC. There are states that produce less oil, but are more dependent on that revenue, right? So the pressure points I think are very different across. Another important issue, I think, right now, which makes this oil boom and descent different of the last time, of the 1970s and mid-’80s, when the oil prices crashed, is that the Gulf States are more integrated into the MENA economy and the MENA political system, as well as the global economy and global politics.
So the Gulf States have taken on much more responsibility in terms of aid to the neighborhood, in terms of foreign direct investment to the neighborhood. And they are displacing or disrupting what were traditional avenues of international financial institutions and the multilaterals in terms of development aid. We see this especially in Egypt, where Gulf injections in to the Egyptian Central Bank have been very, very important. And also in Lebanon, where Gulf foreign aid, economic statecraft policy toward Lebanon has been as much punishing as rewarding.
This has serious consequences for the region as a whole as it becomes more dependent on the Gulf as interventionist, both financial, military, and as economic interventionist in terms of their investment. So this graphic just demonstrates the displacement. The dark maroon is the GCC states really taking, from 2013 especially, the kind of reversal in Egypt after the Arab Spring, and then with the Sisi administration, displacing a lot of what the IFIs used to provide.
The other area is in remittances. So as I said, the populations of Gulf States are largely made up of non-nationals, of migrants, of expatriate workers. And the remittance flows from the Gulf States play a very important role in the financial and political stability of their neighbors — Egypt and Lebanon, again, very important examples. So we see that remittances have been more constant. This goes from the second quarter of 2010 until the end of 2014. Much more than aid. So it shows you the volatility.
At the same time, what we’ve seen since 2011, and really 2013, is a contraction of the civil society space within the Gulf in that more and more expatriates of certain nationalities are less welcome. So some countries will be more at risk for the loss of these remittances than others. Saudi Arabia is very important in the remittances that go to Egypt. There are many Egyptians working in Saudi Arabia. And so the health of the Saudi economy has ripple effects that become very wide.
In terms of labor markets — so in any kind of structural reform that will occur across the GCC, it’s very important to think about what to do with the kafala system, which is the system in which foreigners are — their visas, their right to work inside the Gulf are tied to an employer. And I will leave it to the Bahrainis as being really the most innovative, I think, across the Gulf in working on regulating and reforming labor systems. And this is — should be, I would argue — a very top priority in any kind of structural reform across the Gulf, because what we really need is job creation, higher productivity, and jobs that are not public sector.
And the only way to do that is to create businesses that are interested in hiring nationals, because nationals are going to do work, right, not hiring nationals because they have to, because there’s a quota system, but doing it because wages become competitive. And that is a huge challenge. We see across the GCC a very segmented workforce. And I think this deepens and reinforces inequalities, social divisions. Essentially what this chart shows you is that nationals are the darker shade in each of the rainbow here, and non-nationals are the lighter shade. We have a small portions of nationals, both — especially in the private sector across the GCC.
In the states that have been more successful in getting nationals to work in the private sector, you have to ask why. What made that work? And the Saudi plan, of course, a lot of it depends on the creation of jobs within the private sector. This is easier said than done. No government I know worldwide is very good at creating jobs in the private sector. So one thing we know about structural reforms as well is that it doesn’t really matter if you have to create jobs across the board.
What matters, and what has made the difference in success stories in Taiwan, in South Korea, even in India, there can be a couple of key sectors that kind of startup growth, that create demand for jobs. And those are the sectors that can start a long-term economic growth revival, you could call it. So the choices now, as I said, are very important, because the industries that are selected to be those engines, those incubators of private sector job growth will make the difference between those states in the GCC that do better as a result of the decline in oil prices and the way to handle the need for diversification, and those that have a harder time.
I’m particularly interested in the inclusion of women in the GCC, in both political and economic life. And I’m doing a lot of work on this right now. It might be hard to see from here, but the general story is that there are not a lot of women working in the Gulf, especially among nationals, and especially in the private sector. So what countries are doing different? So in this chart you see here, it has Bahrain, Kuwait, Qatar, and Saudi Arabia. I don’t have data for the UAE. We’re also looking at the domestic sector.
There’s a bit of a skew in the Gulf. There are generally more men than women inside of all the Gulf States, because of the importation of cheap labor, most of it from South Asia. So there’s a real demographic imbalance between men and women. When you include the domestic sector, that’s where the largest part of non-national women are working, so people working as housemaids, right? What we’re also seeing is that the total women’s labor force, that’s the purple bar, in no country really gets more than — much more than a third of the — of the total labor force.
So objectives — the Saudi Vision 2030, the NTP, the objective to get more than a third of national women into the workforce is actually only happening right now — I think we’ve lost our battery — (laughs) — in Kuwait. Bahrain is also doing very well in terms of women’s employment, but mostly in the public sector. Bahrain and Kuwait have the highest portions of women working, so this begs the question are they more likely to be working in those two states because there’s more economic need, is it to generate money for families, or is there something about the political environment, the corporate environment that is more welcoming to women’s employment. I kind of give up on the PowerPoint. I’m just going to keep going, if that’s all right with you guys.
So just to reiterate, the current fiscal reality deficits across the GCC with some diversity, Kuwait being a good example of having saved. But Kuwait is not necessarily a well-diversified economy, right, and will not be very good at creating or generating productivity and private sector jobs. So there are tradeoffs there. Why the 2003 to 2014 oil boom is different from the last one of the 1970s? Because the populations of the Gulf are different, because governments inside the Gulf have made different decisions about how to spend that wealth and how to invest it internationally, and because the Gulf States themselves are integrated very different, or more integrated now, into the MENA region and into global economies than they were by the mid-1980s.
The success of reforms I think very much depends on, of course, domestic politics. And there is a misperception that there are not domestic politics in the Gulf, that it’s all top-down. But that’s not true. There is a lot of civil society, political organization that happens in informal institutions in ways that are not well-studied from the outside. So any of you interested in doing further research, I would encourage that. Labor market reform I think is probably the most important aspect of structural reforms that will move us forward.
Plans like the National Transformation Plan especially are very important in that they change the conversation, the public conversation, the discourse about the relationship between state and society, ruler and ruled. I completely agree with Ambassador Fraker’s statement about that. It’s novel, it’s different. The interview on Al Arabiya between the Deputy Crown Prince Mohammed bin Salman and the interviewer sitting side-by-side, taking questions and answers, that is a new way of seeing governance inside of Saudi Arabia. That doesn’t mean it can fix all the problems, but it is, I think, for many Saudis very hopeful.
Targeted reforms, as I said, I think need to focus on where growth is likely. So not every sector matters, but identifying which sectors matter will be important going forward. I welcome your questions. And again, thank you very much for including me on the panel. (Applause.)
AUSAMAH ABDULLA AL ABSI, Chief Executive, Labour Market Regulatory Authority; Head, National Anti-Human Trafficking Committee, Kingdom of Bahrain
Ladies and gentlemen, good afternoon. First of all, somebody is expecting a part of the presentation is charts. And these are impressive tools. I’m sorry to disappoint. I was given one-hour notice before it started today. (Laughter.)
So I’ve seen the talk today, I’ve seen these impressive speakers talking about the reform, talking about the opportunity, and dissecting the numbers. And it’s all very impressive, except for we need to step back a little bit. As I come from a country that’s embarked on reform during the days of milk and honey in 2003, when things were great and money was abundant, we’ve gone through an uphill battle when it was good times. Those embarking on reform now — I respect them. I respect them a lot. People are the enemies of change. People are the enemies of what they don’t know. Complacency, being comfortable where we are, vested interest, of course, always stand against those who want to reform.
In 2001, Bahrain started its political reform that led to 2002 elections of the first parliament, and then in 2003 we started the economic reform that was later on split into labor reform, educational reform, and economic reform. I was the project manager for the labor reform as early as 2004. And I continued to be the chief executive of the main government instrument for labor reform. Like I said, when we started it was the good days. Oil prices were high. Everybody was happy and making money. And yet, we had to fight our newly elected parliament. We were the very first bill to be written and passed, to do it in the newly found parliament, the labor reform bill.
We had to fight the businesses. We had to fight even the people. And we wanted to create jobs because the idea of changing whatever people were used to from the ’70s and from the ’60s was not so welcome. I see that when we started to see yield from our reform, when we passed the bill and started to build institutions, it was mid-2008. By November 2008, the world economic crisis hit. We had to slow down, because the businesses could not help us move along. 2011, when the so-called Arab Spring hit, we had to slow down because so much change can’t be accommodated by the social, economic, political environment. Once we were back on track, 2014, oil prices go down.
It’s not only goodwill for reform. It’s also being helped by the circumstances, and being flexible and agile and thinking on your feet about how to deal with the changes that come, changes that you cannot control. I actually believe that the reform initiatives of Saudi Arabia come at a very good time, because now the will is up because people really believe — I mean, we were asked back in the day when we started, why are we doing it? Why do we need reform? We don’t need reform. Everything is doing well. We have good employment, very low unemployment. People are making money. But it’s because of that that we believed that we needed reform.
The labor reform, as was pointed out by several of the speakers today, is very important. It’s important because Bahrain is actually the good example here. Eighty-two percent of the labor force is imported. And we’re actually better than others. So the productivity as said, but also the wealth that stays in the country, the wealth that gets reinvested in the country and how much of it goes back to the businesses. It’s about human rights. It’s about humane working environments. And it’s about being part of the 21st century. And these are challenges because they hit the social fabric rather than the economic fabric that the Gulf will have to force and will have to fight.
The reason I’m saying this is I think what’s most important for us here in the United States: How can the U.S. economy and then — and U.S. businesses avail of this? Well, the interesting part is changes are not in your favor either. Changes in Europe today, with the euro so cheap that it was prohibitively expensive in the past and people looked to the United States for technology and for investment and for aid of this transformation. Now you got to be careful. The European Union has a cheaper currency now, after the Brit exit vote in the United Kingdom. And that will make them more attractive than they were before.
We also have to take a look at the reformists themselves. It’s not just how much money we can make or how much business we can do, but it’s also how much support can we give these reformists, because like I said they’re fighting an uphill battle. Before we start talking about what we can do and how we can avail of it we need to look at how we can support these movements because as time become — or continue to be bad, as revenue diminishes with the lower oil prices, that these guys are going to find themselves with fewer and fewer follow ups and need the political and they’ll need the economic and they’ll need even the moral support.
A small note before I conclude, on the labor issues and the labor reform, which is my area of business. The ideas are very simple. The change in the sponsorship or the influence of the kafala system is something that needs to be done. We started that many years ago, and continue to chip at it one piece at a time. Reason being, when we are talking about 52 percent of population and 82 percent of the labor force you can’t flip and switch and expect that everything is going to be OK. The socio-political ramifications are too dangerous. This is not — (coughs) — excuse me. This is not a small amount — a small number of people. These are more than half of the population.
The businesses that are today increasing the cost at the urging of the World Bank and the IMF, and removing the subsidies and introducing taxes, the businesses did not have this in mind when they made their financial plans for the years and when they made their budgets, or when they entered contracts. And they will be affected. We also need to take that into account when we attempt to change their labor relations and the way they are dealing within their own workforce.
We have started this, like I said, luckily enough, in 2008, and actually achieved quite a bit of what we were aiming to before it became difficult. But things need to be looked at from holistic point of view, as well as in focus of specific areas. We cannot change the labor, change the taxation, change the cost structure, change the regulatory environment all at once and expect the businesses to actually just adapt. And if we are going to do so, we need to provide additional support — not necessarily financial — but we need to be understanding of what businesses are going through as a result of these changes in the various arenas.
Thank you for having me here today. It’s an honor and a pleasure. And I hope I added a different angle to the discussions today. Thank you. (Applause.)
THOMAS R. MATTAIR, Executive Director, Middle East Policy Council
Thank you, Mr. Al Absi. We’re glad you could come. We learned about you last night, so. (Laughter.)
Let’s see. We have a little less than half an hour for questions. So the main focus today has been on the economic issues. And we should spend time on that now. But let’s take one question to begin, which would be of a more strategic nature. Ambassador Fraker said toward the end of his remarks that it was very important for the United States to support the Saudi Vision 2030 Plan, because it’s important to the strategic relationship and the stability of the country. And actually, we heard that in the UAE too. We heard in the UAE that there’s a tremendous amount of support there for the Saudi 2030 Vision Plan because Saudi stability is important to the stability of the Emirates, and I think to all the GCC countries.
So would anyone on the panel like to say anything about that, and expand on that for a moment?
AMB. FRAKER: So as I have been named, I think I should probably respond. You know, the position of Saudi Arabia in the region is critically important for all of the countries in the region, and therefore critically important for the United States. So, you know, the United States has a vested interest in stability and, you know, economic prosperity in the region as a whole. And given the regional threats that all the countries in the GCC are facing, with the overlay of the Iranian threat ever present, you know, supporting reform in all its — in all its guises throughout the GCC, in my view, has to be a U.S. government imperative.
And I think if we’re not seeing that as an imperative, then we’re really missing — we’re missing a number of critical points, not just strategic defense-related but also the economic opportunities that will be presenting themselves. I mean, the old adage is where there’s change there’s opportunity. And I think we’re seeing enormous change throughout the region. And that throws up many, many opportunities. So that’s what I’d say on that.
DR. MATTAIR: Anyone else? Yes.
DR. HUSAIN: I just want to pick up on one specific angle. In terms of strategic importance, obviously Saudi Arabia being the largest economy — by far the largest economy has huge strategic importance. But I think there’s another sort of strategic angle that one should consider, which is that all the GCC countries face reforms or need to take reforms that are common. For example, in energy pricing. For example, in taxation, the value-added tax is one, but others as well, perhaps further down the road. Labor laws and reforms and so forth.
And there, moves by any one country help facilitate such moves elsewhere. Moving together — I think Karen made this point as well — moving together facilitates a reform happening. So the value-added tax is a completely new thing. Taxation generally is a new thing in the Gulf. And the countries are finding it easier to move together rather than one at a time. So that I think is an important strategic element to keep in mind.
DR. MATTAIR: Well, there are a set of questions that are of a different nature of political questions. And they have to do basically with popular support and the impact that these kinds of reforms will have on the society, and who can be expected to support them, who can be expected to resist them. So beginning with Saudi Arabia, can we talk a little bit about who the so-called winners and losers might be, or the supporters and the resisters.
What kinds of changes this will involve for the social compact — again, we did touch on this a little earlier — and what kinds of political rights might be demanded? Ambassador Schmierer and Ambassador Fraker and I have traveled in the region and heard a lot of support inside Saudi Arabia for this plan. But can you elaborate on where their support comes from and who may be — who we need to win over in those societies?
AMB. FRAKER: So I think — you know, the whole issue of social stability, if you will, in the region is one that gets discussed a lot. And, you know, it first was discussed at length during the Arab Spring 2011, when there was social upheaval in various countries in the Middle East. And people looked at Saudi Arabia and said, well, obviously Saudi Arabia’s next, only to find that that’s not the case. And one of the points I make about Saudi Arabia is that as a culture and a society, it is — it’s deeply unique. I talked about how strongly conservative it is as a society and a religion. And although — and families and tribes, all of these are mechanisms for unification and stability, actually, in the face of — in the face of change.
And my own sense — and I’ve been traveling as a businessman into Saudi Arabia for over 40 years, and I go out there every month now. And what I hear is that, you know, the need for change, the need for reform has been well-understood at many different levels, and particularly to Saudi Arabia, to now have young, dynamic, senior leader leading this charge for reform and change has an enormously broad level of support — not just in the younger generation where the joke was finally how we have a senior leader who’s got a smartphone and knows how to send text messages — which was not the case in old Saudi Arabia — but also you have this desire for productive change and reform at the middle sector of business, and the upper middle sectors in many government — you know, in the SABICs, the Aramcos, the Saudi Electricity Companies, people who have worked with a bureaucracy and an administration that has been lugubrious at best. The need for change has been obvious for a long time.
So there’s a very broad measure of support for these kinds of changes. I think the impact on society, it’s too soon to tell. We won’t know how that will play out for some period of time. But I’m encouraged by the fact that there is this broad level of support for the changes that are being — that are being proposed. How it will actually work out, the devil’s in the detail, obviously. You know, trying to identify the winners and losers at this point is probably a task that we cannot achieve. But I’m optimistic because I feel there is this general groundswell of support for what the prince is trying to enact. And the cynic would say, well, you know, they don’t have a choice. You know, to be solely reliant on oil revenues to the extent that they were — they are, is not a viable economic model. So these reforms need to be implemented and some of them, anyway, need to be successful. And it will be a very interesting journey.
DR. MATTAIR: Some of the other vision plans have been underway for a while. Do we have anything to learn from the other countries? Maybe that wasn’t your —
DR. YOUNG: That wasn’t what I was going to say. (Laughter.) But I will try to comment on that.
I would agree that there is broad support in Saudi Arabia for the Vision 2030. But at the same time, I think we have the experience, as I said, of the first oil boom to really think about the impact, at least on the corporate sector. And what happened in that period was that many contracting firms, construction firms in Saudi Arabia, went bankrupt. And right now, those firms are also under a lot of pressure.
And the plan depends on a huge amount of infrastructure investment, which will entail enlisting these firms. If they’re all bankrupt in six months, or 12 months, it’s going to be really hard to build the things that are going to build a new economy. So that means there’s a lot of trust that’s very dependent right now between the Saudi government and the private sector, especially contractors. They’ve been issued IOUs in many cases. And so how long they can last before the private — public-private partnerships happen, before more foreign direct investment comes into Saudi Arabia, I think is a very important question.
On the other hand, they’re — we have lots of data, very good cross-regional information and studies on what happens in periods of structural reforms. We know the thesis from the post-socialist experience on early winners. This was work by Joel Hellman, which was very, very instructive. And we know in privatization programs that it often is early winners, the people who benefit from especially major privatizations of state entities, who win a lot. And then the people who lose are often vulnerable communities which we can predict — which would be the elderly, or people who are not as employable.
What’s interesting, I think, about the way the reform discourse is going forward in the Gulf right now is that there is buy-in and understanding that we all have to shoulder some of the weight. But it’s also creating conversations about, well, who are the haves and have-nots, right? If you don’t have an income tax structure it’s very hard to say, look, I didn’t make much last year, I deserve to keep my subsidy. But if you do have to report in some way about what you own and what you earn, then it makes it easier for government to make choices about maintaining some support for certain communities over others. So I think it’s actually — I have some optimism that the tax discussion could actually be useful in a reform dialogue, because it will help some people justify the need for the continuation of some subsidies.
AMB. FRAKER: Well, the only thing I’d comment on that is that the government — certainly the Saudi government — had made it very clear that they have no intention to disadvantage the disadvantaged as a result of this. The mechanics of how you identify the haves and the have-nots have certainly not been worked out, and will be a challenge ongoing. But the social risk to any government that runs of not paying attention to the have-nots in their society is too high to be ignored, and they won’t ignore it.
DR. MATTAIR: So actually direct government assistance to people who need it and are impacted by the reduction in subsidies is in plans in some of these countries. Actually, Karen, can I come back to you? Because in one of your recent publications you noted that the Saudi Vision 2030 is more about government spending and investment than it is about savings and austerity. And you talked about public-private partnerships and you talked about foreign direct investment. But you’re specifically speaking about Saudi Arabia. Can you just take us through the other five countries and maybe compare them to the Saudis in terms of the importance of savings versus investment?
DR. YOUNG: Yeah, I have said that this Saudi plan is very expensive. And I think it is. It requires a huge amount of outlay of government spending, which has to be generated through a privatization or it has to be generated through other people’s money, which is possible, right? In the other Gulf States, I think there is a different track record in terms of existing public-private partnerships. So the UAE is a very good example, one of the first PPEs in the region was with the Abu Dhabi Electricity and Water Authority. And there are models of different kinds of revenue generation — the Dubai toll road, Salik, is a great example of monetizing state assets.
So there are ways to do this. Here is precedent in the Gulf. And I would say Dubai is probably the best example. Dubai doesn’t subsidize electricity and water the way that even other Emirates inside the UAE do. So there are certainly success stories. I think those governments that have built state-related entities that are very competitive and that are more meritocracies inside their own governing structures have more experience to be able to deal with the current situation. But you know, you’ll also know — you’ll also see that the Saudi government is very interested in looking at what its neighbors have done well. So they are actively looking at models in the other Gulf States. So I think this is an interesting moment in terms of GCC unity — not necessarily further institutional integration — but GCC unity in looking at pass successes.
DR. MATTAIR: You have a comment?
DR. HUSAIN: I guess I can say a little bit on the previous question which you asked, which was about possible winners and losers in reform. You know, I think others, Karen in particular, has touched on some of the winners and losers. I just want to add on subsidies, you know, one of the notable things in very large energy price increases across the region has been the lack of sort of social consequences, at least so far. And that’s notable. And I wonder if it’s because we are seeing that subsidies of energy really do go mainly to the wealthy, who consume relatively larger amounts of energy, and therefore benefit more from it. So a cutback in those subsidies really hasn’t been as much of a — of a difficult social issue as some might have expected.
Now, there’s another sort of other potential loser, and that is public sector jobs are going to be far fewer than used to be. And so those getting those public sector jobs, especially those who might not have the skills needed to get good jobs in the private sector, are clearly going to be waiting in queue for a job for much longer. And there I think there is a short-term consequence that the countries will need to absorb, and good social safety nets will be important. Over the longer term, of course, if they are successful in generating diversification and higher productivity growth in the private sector, and also in ramping up education systems so that what the private sector needs is provided in terms of skill acquisition, then over the longer term, of course, the winners will be precisely those that may not fare as well in the near term.
DR. MATTAIR: Well, we actually have a specific question from the floor on this question. Have cuts in the public sector in Oman driven more nationals into the private sector there? And what can we learn from that?
DR. HUSAIN: Well, I don’t know the specifics of what specific reforms in Oman are, but I do know that Oman has had a very large fiscal adjustment. A lot of it is in capital spending, so — and including military spending, which was quite high in 2014 and even going into 2015. So the cutback there has been quite large. I think in terms of cutting back public sector job growth, it’s true not just in Oman. And I’m not sure that the numbers there are significantly worse than elsewhere. But I just don’t have the —
DR. YOUNG: They are, actually.
DR. HUSAIN: OK, then maybe I should talk to you.
DR. YOUNG: No, Oman has done the most significant cuts to public sector workers, and to public sector benefits. So what used to be a very generous nanny state, welfare state in Oman has been cut back considerably. But at the same time, there’s been a bit of a push-pull. And so in November of last year the government actually said, OK, we’re going to reinstate some of those people that lost their public sector jobs. So there is pushback, though it is not necessarily what we would think of as, you know, violent protest in the streets, though I think Oman has seen probably more visible reaction to the reform agenda than in some other places. But, yeah.
DR. MATTAIR: OK. Well, there is a big effort there to attract foreign direct investment and to promote their own exports. And you know, there are questions here from the floor about the sectors of the economy that are most promising. So for example, in Oman you have the development of ports and free zones with manufacturing facilities and logistics centers and tourism. And you know, this is also — tourism is also one of the sectors that’s being considered in Saudi Arabia, along with mining.
Really, a lot of people are basically asking, when we talk about the diversification in these economies, when we talk about foreign direct investment in these economies, where are the best opportunities? Which are the industries that are most likely to flourish? And I think you touched on how important that question is, and how important those decisions are for sparking broader economic growth and diversification. So maybe, Ed, you can talk a little more about the specific opportunities in Saudi Arabia, and maybe some of you can also talk about the others. I mean, in Oman, you know, the development of special economic zones and ports is very significant.
MR. BURTON: Yeah. The McKinsey report, really the bedrock of Vision 2030, identifies eight sectors, some of which have been mentioned. And mining is projected to create 500,000 jobs over the next 10 years. Tourism, less than — Saudis spend less than 3 percent of their disposable income on entertainment in Saudi Arabia. And so when you have the deputy crown prince going to Disney and courting Six Flags, I mean, it’s — for a deeply religious society like Saudi Arabia, to see that in the headlines for those that have followed the Kingdom, I mean, it’s truly impressive.
Just going back to the point that Karen and Ambassador Fraker were making in terms of the private sector — and another plug for the book — you know, I question — I don’t doubt, but I question — in the long term the commitment that the private sector will have to the government’s plans, because without the private sector it’s going to be tough sledding for the government to accomplish what it wants to accomplish. So when you look at income — household income for Saudis, and private sector wages, it’s now about 19 percent.
The goal under Vision 2030 is to move that to 58 percent. How they do that, how they move currently 40 percent of GDP contribution from the private sector, you know, bumping up against the 70 percent that they want, flipping the economy basically, I mean, you can’t do that without private sector involvement. And so you have all these big corporations, Saudi corporations, family-owned businesses, that have global assets all over the world. Convincing them to bring some of that capital home and spend more of their capital at home, and take a lot of the assets off government books onto their own, is a big challenge.
And just one last thing, you know, I think one of — the stage is set for the small- and medium-sized business community and entrepreneurship in the Kingdom to really take a great leap. When you look at now SMEs contributing 20 percent to GDP, and the government wanting to move that to 40 percent, where the international norm is 70 percent. Now, when you look at the government spending money and creating the Small and Medium Sized Enterprise Authority, similar to our SBA, the government not having in Saudi Arabia set asides, looking at that, I think the stage is set if the government follows through with its plans to really bolster that sector, that that can contribute a lot to what the government wants to do. So they could be big winners.
DR. MATTAIR: Ed, you mentioned eight sectors. And one that you did not mention is education. But there are plans to privatize education as well, are there not?
MR. BURTON: That’s been a challenge. Certainly levels in education in Saudi Arabia —
DR. MATTAIR: Higher education.
MR. BURTON: Higher education has been, you know, an easier road for American institutions, K-12 less so. Ambassador Smith knows very well, other than the corporate interests he paid a lot of attention to education. Actually, I think it was a passion of the ambassador there, higher education and a lot of work that the universities are doing. It’s not one of those that is mentioned in the McKinsey report, not to say that they’re not targeting that. They are targeting that for privatization. How that follows through, I don’t know.
DR. MATTAIR: Could I — yes. Yes, please.
DR. YOUNG: I would say the key industries to target — I’m not very optimistic about mining. I think the half a million jobs, those are not going to be Saudis doing the mining. But there are a lot of opportunities, especially in health care. This could be a very good sector in which women could enter the workforce, if they were willing to take on jobs as nurses or as other, you know, hospital techs, med techs. And that would be a way for people without advanced degrees to find work.
Across the Gulf, in the UAE, we’re seeing a very big concentration on fintech, financial services. There is a very underserved in all the GCC states for people to basically access different kinds of credit, different kinds of ways of investing. So private wealth management, those kinds of things, but even basic banking is one growth sector. So fintech, health care, education as well, and retail is one that I think is an easy entry point.
Though, it does seem — and you might be more of an expert on this — it does seem that some of the rules on foreign ownership, they have been loosening, which for a foreign investor, of course, is very positive thing. But if we think about the success of the state-led economic development model across the Gulf, it was the reliance or the requirement that in order to have a business inside a Gulf State you would need a local partner. And that was a way that a lot of wealth was generated and then distributed among the population, just by that simple rule. If that rule is no longer in place, or is deteriorated, it’s great for foreign investors, but I think it could have some side effects for locals.
DR. MATTAIR: We only have about two minutes. I have one question. Maybe Karen and Aasim can talk about this. The UAE actually has two vision plans. There’s the — there’s the 2021 Vision enunciated by Dubai’s ruler. And then there’s an Abu Dhabi 2030 vision. Can you compare and contrast them for a minute? (Laughter.)
DR. YOUNG: The UAE has always had very independent Emirates. And they have their own economic development models. And Dubai and Abu Dhabi, of course, have very different ways of doing business and ways of diversification. So that’s not new. And I think there’s a certain learning pattern that’s happening between them. They rely on each other. I think there’s, you know, strong relationships. But Abu Dhabi has much more of a — of course, is the seat of the federal government, public sector is very important. And it’s more of a challenge to encourage the private sector there.
There’s also the problem across the Gulf of these kinds of duplication of efforts. So we don’t need five financial centers in the GCC, right, that doesn’t make any sense. So it doesn’t make a lot of sense to have — you know, to have a financial center in Abu Dhabi and one just up the road in Dubai. So I think there’s going to be a bit of working out to do in terms of strategy and priority of diversification goals there.
DR. MATTAIR: OK. Well, it’s 3:00. Thank you very much for joining us. And thank you very much to the panel, an excellent panel. We will publish this transcript in the next issue of Middle East Policy, which I think will be available in September. And within a day or two, you can watch the video of this on our website, www.MEPC.org, and watch videos of all the previous conferences as well.
So thank you very much for coming and for your questions. (Applause.)
Deputy Director of the Middle East and Central Asia Department,
International Monetary Fund
Chairman, Merrill Lynch Kingdom of Saudi Arabia
Former Chairman, Kohlberg Kravis Roberts & Co. (KKR) Middle East & North Africa
Former Ambassador, Saudi Arabia
President, Middle East Policy Council
CEO & President, U.S.-Saudi Arabian Business Council
Senior Resident Scholar, Arab Gulf States Institute
Non-Resident Fellow, London School of Economics Middle East Centre (MEC)
Ausamah Abdulla Al Absi
CEO, Kingdom of Bahrain's Labour Market Regulatory Authority (LMRA)
Former Ambassador, Oman
Chairman of the Board of Directors, Middle East Policy Council
Executive Director, Middle East Policy Council
The Middle East Policy Council convened its 85th Capitol Hill Conference on Tuesday, July 12. “Economic Reform and Political Risk in the GCC” provided the public with a deeper analysis of the national economic development plans envisioned by Saudi Arabia, the United Arab Emirates (UAE), Qatar, Kuwait, Oman and Bahrain. The Saudi Vision 2030 in particular has generated significant media coverage and business interest in the United States. This plan makes a commitment to greater diversification of the Saudi economy by 2030 and more transparency in government ministries. More detail can be accessed here.
The four-person panel analyzed these plans in terms of their similarities and differences, as well as their possible social impacts domestically and the new business opportunities they offer to global companies. Richard Schmierer (former U.S. Ambassador to Oman; Chairman of the Board of Directors, Middle East Policy Council) moderated the event and Thomas Mattair (Executive Director, Middle East Policy Council) was the discussant. The panelists included Aasim M. Husain (Deputy Director of the Middle East and Central Asia Department, International Monetary Fund); Ford M. Fraker (Chairman, Merrill Lynch Kingdom of Saudi Arabia; Former Ambassador, Saudi Arabia; President, Middle East Policy Council); Edward Burton (CEO & President, U.S. – Saudi Arabian Business Council); and Karen E. Young (Senior Resident Scholar, Arab Gulf States Institute; Non-Resident Fellow, London School of Economics Middle East Centre).
Mr. Husain provided a broad overview of the macroeconomic trends facing the GCC countries. He explained how lower oil prices have prompted fiscal tightening and diminished government accounts. By reducing subsidies and government spending but not yet realizing robust private-sector growth, all of the GCC states should prepare for slower GDP growth and higher unemployment in the near term. Beyond the next few years, the growth prospects of each GCC state will be largely dependent on whether the historical elasticity in job growth remains constant or changes so that more jobs can be created with lower government spending. This interim period between the recent era of high oil prices and the less oil-dependent future imagined by many of these national development plans could also reveal challenges in political implementation.
Mr. Fraker framed these reforms in the context of U.S. relations with GCC states, especially Saudi Arabia. He characterized these changes as “unprecedented,” ushering in a new era of economic diversification and government transparency that would have been unimaginable in Saudi Arabia just a few years ago. Some examples from the kingdom of this transformation in action include: a lengthy interview by the Crown Prince with the Financial Times discussing the Saudi Aramco public offering; ministers taking questions from the public around measures to ensure accountability; and the curbing of subsidies and resulting changes to the compact between the Saudi population and the royal family. Regarding the U.S. – Saudi Arabia bilateral relationship and trade between the two countries, Mr. Fraker sees significant business opportunities emerging, something that is reinforced by the strong government involvement in efforts to promote investment by the newly organized Ministry of Commerce and Investment.
Mr. Burton expanded on the details of the Saudi Vision 2030 and the specific goals within it. Some of these goals include: restructuring to accelerate government decision making and increase efficiency; establishing two Councils to oversee government strategy; examining state-owned sectors as candidates for privatization; public-investment-fund restructuring to increase investment resources and allow the fund to manage new types of assets; Saudi Aramco strategic transformation and establishing the company as a leader in industries other than oil and gas; and forming strategic partnerships and enhancing Saudi Arabia’s trade links with nations worldwide and increasing exports. Mr. Burton also highlighted the value of greater strategic partnerships as a mechanism to take assets off government books and have them shouldered by the private sector.
Ms. Young noted how in global debt markets, where it can be challenging to make money, GCC clients are good partners to have. Furthermore, all GCC states currently have good access to capital and can pay for it, even if it is still more expensive than it was during the prior period when oil prices were higher. In her view, the boom period from 2003-2014, when large amounts of wealth were created in the GCC, resulted in generally positive investments as states funded education, their militaries and other social services. While efforts at diversification and savings varied significantly across the region, this recent boom period realized superior outcomes compared to the 1970s. The Gulf Economic Barometer provides further monitoring of initiatives taken by Gulf states as they seek fiscal, monetary, and labor policy changes to meet the challenge of reduced state revenue from natural resources.
Mr. Ausamah Abdulla Al Absi, Chief Executive Officer of the Kingdom of Bahrain's Labor Market Regulatory Authority (LMRA) also spoke briefly, sharing Bahrain's recent experiences with reform. Mr. Al Absi stressed that reform is not only dependent on good will but also circumstances, as often just when reforms start to show results, external factors intervene. He offered the recent global financial crisis and fall in the price of oil as two examples of these external shocks that are difficult to anticipate. Political instability resulting from the 2011 uprisings throughout the region is another example. Mr. Al Absi also addressed labor reform, pointing out how businesses are impacted and the need to incorporate their strategic needs into broader labor reforms initiated by government.
The full video from the event is already available on the Middle East Policy Council website. An edited video by speaker, including a full transcript from the event will be posted in a few days at www.mepc.org and published in the next issue of the journal Middle East Policy. For members of the media interested in contacting these speakers or other members of the Middle East Policy Council’s leadership, please email email@example.com.