Editor's Viewpoint: Beyond Oil: A New Middle East Vision

Abstract

Global demands for oil have produced enormous wealth for major oil-producing nations in general, and the Arab Gulf States (AGS) in particular — a region which has the world's largest oil reserves. During these economic good times, the AGS spent more on buying friends and influencing people near and far. At home, it was general public subsidies, in what amounted to a welfare state, with lavish spending on citizens from the cradle to the grave. According to the McKinsey Global Institute “The oil price boom from 2003 to 2013 fueled rising prosperity in Saudi Arabia, which became the world's nineteenth-largest economy. GDP doubled, household income rose by 75%, and 1.7 million jobs were created, including jobs for a growing number of Saudi women. The government invested heavily in education, health, and infrastructure and built up reserves amounting to almost 100% of GDP in 2014” (McKinsey Global Institute, 2015). The AGC's hydrocarbon culture created citizens' dependency on the state, and a resultant massive and bloated unproductive pool of public employees and uncontrolled bureaucracy that hindered rather than helped national development and progress. While world consumption for oil was on the rise due to economic advancements — especially in the BRIC (Brazil, Russia, India, China) countries — more energy production and export from other countries (especially the United States), and most recently sanction-free Iran has added to the recent global oil glut and subsequent fall in oil prices. Such a reduction in oil prices has had a negative impact on the economies of the oil-producing AGS, which stand accused of ignoring the advice and warnings of specialists and leading economists about the consequences of almost total dependency on oil revenues. While it could be said “better late than never,” the recent Middle East social and economic proposals for reform and austere measures are steps in the right direction, and worthy of studying, critiquing, and fine tuning. These recent Arab reform proposals from within and without the region could lead to better management of the affairs of these countries whose citizens have for too long enjoyed national prosperity and a sense of entitlement and dependency on the state. This time around, proposed national plans and calls for economic and social reforms are emerging primarily from within the Arab oil-producing countries, nudged nonetheless, by dangerous economic indicators and warnings from international organizations such as the International Monetary Fund (IMF) and the World Bank, among others. As a consequence, almost all Arabian oil producing countries are rushing to develop new plans, and dust off and update old studies and long-ignored proposals by way of preparing for the predicted sharp decline in oil revenues and lessen the negative impact on their national economies. The recently floated Arab economic proposals and national plans designed to face the inevitable should be carefully examined for their positive as well as negative impact, repercussions, and the search for better alternatives. There is a common agreement among Arab decision makers that the past practices of government-led economic models have failed, and it is time to switch to a more aggressive and market-based approaches and solutions. A case in point is the most recently circulated Saudi Arabia Vision 2030, which was brought out of necessity to face serious economic, social, and political conditions facing the Saudi kingdom. The current Saudi monarchy decided to face such matters which the previous monarchy under King Abdullah decided to postpone or ignore, especially in the period leading up to and during the Arab Spring. The postponement may have come as a result of the cautious former king not wanting to upset his subjects during the turbulent times of the Arab Spring and its domino effect on surrounding Arab regimes in Libya, Syria, Tunisia, Egypt, and the uprisings next door in Bahrain and Yemen. The recently announced Arab plans, exemplified by the ambitious Saudi Arabia Vision 2030 plan is the latest attempt to respond to a massive decline in state budgets due to a stagnation of the state-controlled economy and global oil glut that has reduced the price of crude oil in the world open market from a high of $150 a barrel few years ago to the current (as of August 2016) $39 per barrel. The resulting economic impact proves once again to be another rude economic awakening to oil producing countries in general and those in the Arab Gulf region in particular. More nations are now producing and selling oil, and the lifting of economic sanctions in Iran has resulted in flooding the global market with oil, with a subsequent decline in oil prices. Add to this, western advancements in conservation, producing and consuming alternative sources of energy, and the economic picture and forecast for the oil exporting Gulf economies becomes even gloomier. The AGS are coming to the realization that their economies should end the customary deep dependence on oil revenues and seriously engage in building a dynamic twenty-first century economy, realizing that the current path cannot be sustained much longer. The adage, “better late than never,” is an aptly applicable description, as the AGS are gearing up to adopt austere economic measures that rely less on currently shrinking oil revenues, and explore other revenue sources on one hand and end the unsustainable domestic expenditure on the other. Economic planning alone will not be enough, and thus other measures must be taken into serious consideration, no matter how unpopular among Arab citizens who have been accustomed to the generosity of their welfare states. Such measures must include better management of material and human resources. Moving away from the common practices of relying on the state from the cradle to the grave, these AGS have begun to adopt the policies of a free market economy, knowing full well the advantages, and in particular, the disadvantages of these policies, and the resulting citizens' apprehension and possible resentment. Such changes are easy to propose, but they are hard to implement given the long history of Gulf citizens' culture of dependency on their once overly generous governments. On April, 2016, Saudi Arabia, the most populous oil-producing nation released the Saudi Arabia Vision 2030 along with its companion, the National Transformation Program (NTP), an 84-page document released in April by Deputy Crown Prince Mohammed bin Salman — both blueprints for the future of an oil dependent nation such as Saudi Arabia showing how to make its economy less dependent on oil. The objective of the plan is to lower the unemployment rate among Saudi nationals, bring more women into the workforce and more than triple the share of nonoil exports. These and other lofty goals and targets for implementation seek to boost non-oil revenues and to create jobs for the large pool of a growing and young unemployed Saudi nationals, as well as “attracting both regional and international retail investors and easing restrictions on ownership and foreign investment” (Saudi Arabia Vision 2030, 2016). Such a national plan, once implemented, has to be studied and observed and its progress and implementation followed and monitored very closely, so lessons can be learned from its implementation in one of the world's largest oil producing nations. Unlike the oil boom era that lasted from 2003 to 2013 and guaranteed Saudi nationals' cradle-to-grave financial guarantees, the future casts a dark cloud as the Saudis face economic, social, and political challenges at home and abroad. At home, there are demographic challenges with a growing young population that faces economic and employment hurdles. The population of young Saudis under the age of 30 is exploding — the young population growth is currently estimated at 70% of the population and their future is uncertain due to massive unemployment of more than 12%, and rising fast (Rashad & Paul, 2016). While the adult Saudi population will more than double by the year 2030, the current state of national resources and job opportunities needed to sustain such a growth will continue to dwindle (Spindle & al-Omran, 2016). Designed and promoted by Deputy Crown Prince Mohammed bin Salma, the Saudi Plan has been described as the most comprehensive economic reform package in the kingdom's recent history. It is touted as a “neoliberal blueprint for privatizing entire sectors, raising non-oil revenues, cutting subsidies, courting investors at home and abroad, streamlining government services, and going public with the Kingdom's giant oil company (Saudi ARAMCO), among hundreds of other initiatives” (Reed, 2016). The main objectives of the Saudi Plan are: first, to enhance the generation of non-oil revenues, by raising fees and tariffs on public services, gradually expanding the tax base (including the introduction of a value added tax), and raising more income from a growing number of visitors to the kingdom; second, to reduce spending by lowering subsidies, rationalizing the country's massive public investment program, and diverting monies spent on foreign arms purchases into other investments; and third, to diversify its national wealth and, in the process, increase current investment income. For example, the plan would raise funds via the proposed initial public offering of up to 5% of Saudi-ARAMCO, and invest the proceeds in a broader range of assets around the world. Furthermore, in addition to reducing government expenses, subsidies, a 5% reduction in public wages and other handouts to Saudi nationals, the Saudi Plan provides incentives to investments in the retail sector by foreign nationals who can, according to plan, own 100% of their business without being forced to partner with a Saudi national. This is a change from the previous policy which limits foreign business ownership to a maximum of 75%. The new rule requires certain conditions, paramount among them being the requirements for foreign businesses to invest at least $53 million in the first five years after obtaining a license, and “achieve the percentage of Saudization as fixed by the Ministry of Labor and Social Development, and … implement plans for providing training to a fixed number of Saudis and appointing them in key posts, in addition to ensuring their job security” (Saudi Gazette, 2016). This, according to published government reports, could create one million new retail jobs by 2020. It is worth noting that the current and official unemployment rate among Saudis is 11.6% and rising (Rashad & Paul, 2016). In his foreword to the document, Prince Mohammed wrote “We will not allow our country ever to be at the mercy of … commodity price volatility or external markets.” The proposed Saudi National Transformation Plan and other suggested government measures could save the treasury around $53 billion by 2020, promoting private business ownership by nationals and foreigners, and encouraging home ownership by the Saudis. Most recently, the Saudi Cabinet also approved rules for implementing the Ministry of Housing Plan which, under Vision 2030 and the NTP, envisions 52% of Saudi citizens will own their own homes by 2020 and to encourage national and foreign investors to develop the housing sector (Al Arabiya, 2016; Arab News, 2016). While some of the Saudi Plan and related government measures are sound and economically feasible, especially in top-down monarchic government structures like those of the Gulf region, the most serious challenge is to convince their citizens to tighten their belts, forgo a long established practice of generous public support and subsidies from the cradle to the grave. In addition to these pre-requisite economic changes, there are also the most serious challenges of changing citizens' work behavior and self-reliance, as the foreign skilled and non-skilled work force is removed and replaced with more Gulf citizens not accustomed to, or fond of these jobs. From an economic standpoint, the Saudi and similar AGS plans receive positive comments, evidenced by the IMF statement “the reform plan aimed for an appropriately bold and far-reaching transformation of the Saudi Arabian economy.” The statement further added “the supporting policies that will be announced in the coming months are expected to set out how these goals will be achieved,” (Asharq Al-Awsat, May 19, 2016). However, from a sociological point of view, one wonders if such a plan will receive the public support from a major segment of the society that will feel that they are the ones who are sacrificing the most in what is a very affluent society. Critics of the Saudi Plan believe that such a plan is not designed to restore the economic and social dynamism of the GCCs in general, and the Saudi kingdom's in particular, but rather, to create it from scratch, and thus, in the opinion of some, it may be too little too late. Others find the plan “short on economic sacrifice, fiscal austerity, and, above all, social risk” (Motz, 2016). There is also the very serious and practical problem of shortage of skilled manpower among GCC nationals willing and able to perform most of the current or anticipated several million jobs in fields such as petrochemicals, mining and metals, manufacturing, retail, hospitality, healthcare, and construction, which nationals perceive to be beneath them, or for which they have not been trained.