Published: 12:46, March 6, 2023 | Updated: 12:45, March 6, 2023
Economic makeovers in the Gulf
By Gokhan Ereli

Persian Gulf nations kicked off efforts many decades ago to revamp their oil and gas-export based economic structures. The accumulation of wealth brought about by the export of fossil fuels such as oil and gas has rendered it possible to acquire the political power necessary to reinforce monarchs’ position in the face of local and international geopolitics. 

The monarchies have been able to cope with regional challenges by establishing alliance networks with Western nations like the United States, the United Kingdom, and France, as well as by consolidating their authority at home. However, the competition for economic supremacy among the Gulf nations began to play out intensely in the 2000s, particularly as the region’s integration into the global capitalist economic system quickened.

The economic conduct in the Gulf and the Middle East has been primarily fueled by Saudi Arabia, the United Arab Emirates and Qatar as these nations constitute some of the largest Arab economies. 

The establishment of companies in the hydrocarbon sector coincided with efforts to regulate and institutionalize the income sources that come from the largest sector of the Gulf economies, and to use the capital accumulation obtained from this income flow for the development of other sectors. 

The national oil company of Saudi Arabia, Aramco, with a market value of approximately $2 trillion today, and the national oil company of the UAE, Abu Dhabi National Oil Company, or ADNOC, were founded in 1933 and 1971, respectively. With the establishment of these companies, the processes of capital accumulation were brought under control and the countries became major energy producers. 

The weight of non-oil industries in the economy has grown as a consequence of resource diversification. This, in turn, has boosted non-oil industry revenues and also encouraged foreign direct investment. Increasing tax income is another priority, although it is less popular in Gulf nations than in other Middle Eastern countries and those outside the region.

The largest Arab economies today, such as Saudi Arabia, the UAE and Qatar, have long sought to boost FDI inflows as part of efforts to diversify their economic resources. To do this, they encourage more skilled workers to live and work in their countries while also allowing multinational corporations to conduct business there.

In this regard, the Middle East nations that have drawn the most FDI in recent years include Saudi Arabia, the UAE and Egypt. 

Meanwhile, Saudi Arabia has announced that multinational corporations would not be eligible to receive contracts from Riyadh from 2024 unless the firms have a regional headquarters in the kingdom. This was a poke in the eye against Doha and Dubai.

In contrast, Dubai, the wealthy emirate, has amended its laws and regulations to promote it as a more welcoming place for foreigners and investors. Dubai is a regional and global financial hub. Hence, state measures to diversify the economic resources also lay the groundwork for the development of an environment conducive to economic competition.

A key mechanism in the diversification of economic resources in the Gulf countries is the Future Vision Project. The main purpose of these projects supported by the sovereign wealth funds, which have been established not only in the Gulf countries but in economies rich in natural resources, is to develop the non-oil sectors of the economy and to increase and diversify the assets managed, thus incomes. 

The Saudi Arabian Public Investment Fund and the UAE’s ADIA, Mubadala and ADQ investment funds constitute important instruments of the countries’ policies to diversify their economic resources. 

The 2030 Vision put into practice by Crown Prince Mohammed bin Salman in Saudi Arabia, the Abu Dhabi 2030 Economic Vision in the UAE, and Qatar’s 2030 National Vision serve as examples for future projects within this framework. 

In tandem, Gulf nations are putting private sector restrictions into effect in line with their plans to diversify their sources of income. As a result, it is essential to maintain a balance between the public and private sectors to encourage foreign investment and resource diversification.

In this regard, the Saudi Crown Prince’s 2030 Vision could be viewed as a comprehensive action plan. Vision 2030 essentially specifies Saudi Arabia’s long-term goals for its economy, society, and urbanization as well as the actions the government is taking to accomplish these goals, according to the official text of the action plan. 

The 2030 Vision is based on three fundamental principles, which are derived from religious, geopolitical and geo-economic concepts. Saudi Arabia gives this idea legitimacy by asserting itself to be the hub of the Islamic and Arab worlds. Saudi Arabia’s policy must consider excellent ties with the Islamic world. The geo-economic concept highlights Saudi Arabia’s desire to draw in foreign capital while giving priority to investments in the diversification of its economic resource base.

Given this situation, Saudi Arabia has to contend with competition for regional and international investors because investments are a way to diversify economic resources. Saudi Arabia’s interactions with the UAE may therefore be considered as an overlap in terms of investment aims when compared to the Gulf economies, which have comparable instruments and purposes. 

Saudi Arabia sees its geographic location as a bridge between Asia, Europe and Africa following the geopolitical paradigm of Vision 2030. This might mean that the kingdom views the 2030 Vision as a long-term action plan with political and geopolitical goals rather than an economic strategy.

In this regard, the UAE has presented a vision statement to guarantee the economic prosperity of Abu Dhabi, much like Saudi Arabia. The document makes it very obvious that Abu Dhabi has two main objectives for its economic strategy. Building a sustainable economy and fostering social and regional economic growth are the two key objectives. Abu Dhabi has set forth several economic policy objectives aimed at solidifying the UAE’s place within the international monetary system.

In other words, it should be acknowledged that developing a larger and stronger economy for the UAE is Abu Dhabi’s main objective in terms of economic policy. Given Abu Dhabi’s political clout inside the UAE, the fact that it has a sustainable economic growth plan and mostly relies on oil revenues to fund it suggests that its goals, ambitions, and possibilities are similar to those of Saudi Arabia.

As a result, the assertion that Riyadh and Abu Dhabi are engaged in a regional power struggle stems not just from the objective and methods but also from the theoretical perspective. Making the finest preparations for the transition to a post-oil economy may be summed up as the primary goal that Saudi Arabia hopes to accomplish by 2030. On the other hand, the Abu Dhabi political elites’ priority appears to be a sustainable economy in the UAE.

Riyadh and Abu Dhabi continue to diversify their economies by instrumentalizing the financial prowess they attained from the oil market and derivatives. In addition to the fact that this issue has already created a great overlap, the fact that both countries carry out investment activities through mutual funds affiliated with their public wealth funds symbolizes the competition in the economic policies of the Gulf countries.

The author is Gulf studies coordinator with the Center for Middle Eastern Studies, a nonpartisan and nonprofit research center based in Ankara. 

The views do not necessarily represent those of China Daily.