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 mepc.press@gmail.com.