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Industrializing Gulf Society
Ambassador Frances Cook
Summary:
May 12, 2009
Industrializing Gulf Society
Frances D. Cook, with Karen Nielson
Introduction
The Industrial Revolution in the West vastly changed the landscape of not only those economies, but the way those societies functioned. A similar, profound transformation has started in the Arab Gulf, as these countries begin to react to their unprecedented growth and resources. So far, the GCC countries have managed to avoid the seamier underside of globalization and have emerged as some of the most intriguing economic spaces in the world. Furthermore, long viewed as a bastion of Arab tradition, the Gulf now has some of the most visionary and innovative leaders in the Middle East.
In contrast to the United States, for example, Gulf States have cost-free and generally excellent health care for all their citizens. This was an early goal all Gulf States set for themselves, and they are using the current rush of resources to finalize the amazing transformation of health care in the region. In fact, by 2000, Oman was ranked first by the World Health Organization in Health Service Performance and fourth in Best Overall Health Care following France, Italy, and Spain.[1]
According to the Institute of International Finance, Arab Gulf countries earned $1.5 trillion in oil revenue between 2002 and 2006. This is double the amount made during the previous five year period, and does not reflect the high oil prices that multiplied all Gulf treasuries many times over. It is expected that the growth rate will reach 8% this year, after already reaching 5.2% in 2007.[2] But in addition to huge financial reserves, all GCC countries are coping with challenges, such as a large increase in their youth populations, who will enter the workforce in the next 10 years. In Oman, 42.7% of the population is under 14 years of age,[3] and the numbers are similar in Saudi Arabia.[4] These factors present significant challenges—even danger—but also opportunities for these countries.
Also, and increasingly, each GCC country has set goals and chosen paths to succeed in this globalizing world. As Booz Allen reports, “Although the Middle East is known as a tradition-bound region, its decision makers are fundamentally progressive. They understand that the world is changing and often recognize when their own institutions must change as well.”[5] Below, I chronicle some of these positive changes but also point to where attention is still needed in such areas as the economy, education, and employment.
Diversification
It is generally recognized that diversification is critical for an economically successful future. Gulf states, by creating a mixed economy, hope to expand economic opportunity and spread wealth while enhancing stability and reducing their dependence on hydrocarbon income. But a “one size fits all” approach will not work. Oman is building, for example, a service/tourism industry, while other Gulf countries promote the banking, media, or manufacturing sectors that best suit their respective geographical locations and resource base. Yet all have some sort of effort underway that may be broadly called “industrialization.”
Trade between the countries remains the lowest regional trade in the world at 10%.[6] A diversification of services and non-oil exports would create opportunities for trade within the region, instead of competition in the same areas. Also, as GCC states design their modern economic sectors, they must be wary of an overdependence on gas-fueled capital projects. Some projects, currently under construction, have yet to lock in firm gas supplies. As recently as the fall of 2007, I heard project managers discussing either importing coal or developing wind power for industrial projects in the Gulf.[7]
The creation of economic “oasis cities” is another interesting idea currently popular in the region. Reports state that there are over 55 economic cities established or under development in the GCC.[8] The United Arab Emirates has been working on creating them since 1985. Bahrain and Oman are also developing these independent and all-encompassing urban centers, as well as Saudi Arabia, which hopes to create 1.3 million new employment opportunities in six new oasis cities by 2020.[9] Before the Gulf goes too far down the path of these purpose-built cities, I hope they will examine some of the advantages and disadvantages of similar spaces elsewhere in the region; a visit to the huge mill towns in Egypt’s Delta, such as Mahalla al Kubra, would be instructive.
Booz Allen also reports that
the emergence of a new regional, diversified economy is a fundamental shift that will affect not just corporate investment, but geopolitical activity as well. The Middle East may be developing a new type of economy, different from any other that has preceded it. It is not patterned on the models of North America and Europe. Instead, if anything, this economy is an attempt to re-create the flourishing, outward-looking Silk Road economy of the Islamic world of the twelfth to fourteenth centuries, when Arab merchants were the world's economic leaders. This phenomenon is being spurred on by a broad group of decision makers—rulers, government officials, bankers, manufacturers, and some outside investors and companies—who are trying to build a bridge between Middle East culture and its economic potential. They understand that if the region is to thrive, it must build its future on a diversified foundation. They realize, as a result, that they must foster the innate entrepreneurial spirit of their people.[10]
I would add that political liberalization is occurring in the Gulf along with bold moves in economic development. It is coming more slowly and in a different manner in each Gulf state, but it is occurring. It will be fascinating to see if Gulf rulers continue to “lead from the front” in this sphere, as they have with economic development.
Education
As the world becomes more global, interconnected, and technological, an educated base from which to draw becomes imperative for the Arab Gulf. The GCC countries have made significant strides toward enrolling children in educational programs from early ages and adding a world language—English—from grade one. These shifts have quickly increased literacy to high levels and have closed the gap in basic education for both sexes. Teachers are also now being trained rather than imported. But reforms are still needed.[11]
As we saw with the the “Asian Tigers” and, more recently, Ireland, a fundamental building block to economic expansion was an appropriately educated work force. Education in the Gulf needs to focus more on management and technical training, and not on preparing young people to work in the government. The day when the primary employer of educated graduates is the government has passed pretty much everywhere, with the exception of Kuwait, where 90% of the country’s workers are on the government’s payroll.[12]
Furthermore, a shift from curricula that rely on rote and nonparticipatory learning to classrooms that promote problem solving and application of knowledge is still required.[13] The United Arab Emirates recognizes this need and is working on the issue of primary education with international education consultants. At the heart of this effort is a pilot mentoring program of 37 foreign school principals who mentor two UAE principals each in new methods.[14] In addition to continuing reform in primary education, it is also necessary to provide educational opportunities in secondary and post-secondary institutes as well as technical and management training to create a workforce that is ready to take on the opportunities and challenges that await them. A government-private sector partnership in designing training programs for current and future labor markets will be essential in the coming years.
Qatar, long a leader in education in the Gulf, has done an excellent job of recognizing the problem at the tertiary level and has been for some time applying serious resources to education reform. Collaborations with Cornell, Georgetown, Carnegie Mellon, and Texas A&M are well along.[15] Cornell's commitment to education, research, and patient care has been replicated in Doha at the Weill Cornell Medical College in Qatar, where its first class of 16 medical students graduated in 2008.[16] Qatar has been appropriately “tough” with American institutions who wish to partner with it by insisting with Cornell, for instance, that faculty must be from the Cornell staff—not academics who are baptized “Cornell” and then put on a plane for Doha. That makes a difference, not only in the quality of education offered on the Doha campus, but in Qatar’s long term ties to that prestigious American university. It is important for collaborations such as these to continue to foster growth across cultures and increase the caliber of educational opportunities in the Gulf. I’d recommend this insistence on the “real thing” to other Gulf states busy building U.S. and UK campuses in the region.
Employment
Population growth in the Middle East and North Africa (MENA) region as a whole has been astonishing. Mortality rates began to decline in the late nineteenth and early twentieth centuries, but the decline in fertility did not occur until the ten year period between the mid-1960s and early 1970s. The region's population growth rate reached a peak of 3% a year around 1980, with a current rate of 2% a year. In comparison, the world growth rate peaked at 2% decades ago and is currently at 1.2%. As a result of these figures, there were nearly 95 million youth between the ages of 15-24 in the MENA region in 2005. This number is expected to peak at 100 million by 2035 and then slowly decline.[17]
The Gulf has some of the highest unemployment rates in the world. Although actual figures are hard to come by, it is estimated that unemployment in Saudi Arabia is at 14%, with Oman at 16% and Bahrain at 17%. The United Arab Emirates, Qatar, and Kuwait all have rates of less than 4.5%.[18] The Gulf’s very stability can be threatened if meaningful employment is not created quickly for the thousands of young people who enter the job market each year. We have already seen instances of social tensions in states that have too many young people with time on their hands. This is an area to watch specifically to make sure that drugs, radical ideologies and theologies, and other scourges of our times—already present in the Gulf—do not find, among unemployed youth, large numbers of new recruits.
Women
As Arab Gulf countries begin to realize the importance of women in economic development, greater female involvement in all sectors has been evident. For example:
§ All member states of GCC countries, with one exception, have female cabinet ministers—and they are no longer only in “female ministries,” but handle portfolios like finance.
§ In the Gulf, according to Her Excellency Sheikha Lubna Al Qasimi, the UAE Minister of Economy, women currently form about 25% of the workforce, and 4.5% own freehold businesses.[19]
§ Women investors manage investments worth more than $35 billion in the Gulf region.[20]
§ Women can also be a source of untapped investment capital; it is estimated that Saudi women control approximately $6 billion in untapped bank reserves.[21]
§ Oman became the first Arab country to appoint a woman ambassador to the U.S. in 2006. One-third of Omani civil servants are women, and 13% hold senior positions.[22]
However, these successes do not tell the full story. The 2002 Arab Human Development Report was a wake-up call, with its detailed account of the uneven and slow pace of the region’s development progress.[23] Differences between genders were particularly striking as compared to other regions around the world. A broader acceptance of the importance of women for economic development and the industrialization process is still needed for Gulf society to continue to advance. As that understanding deepens, it will discover the many benefits, as I believe Western nations have, of having women in supervisory positions in the work force.[24]
Labor and Investments
The Gulf, even with its vast monetary resources, has not shown itself to be immune from pitfalls, such as the various “market corrections” in recent years. Though some of these were quite profound, the earlier environment of widespread corruption has greatly abated. However, labor issues—made worse by current inflation pressures—have pushed themselves to the forefront in recent years. Conditions under which Third Country laborers work and live, especially in the region’s overheated construction sector, must be improved, and not just “on the books,” but in strict enforcement of the international standards the GCC states have committed to honoring. Several serious labor riots in 2007 and 2008 have drawn the world’s attention to a genuine need for improvement in this area. Merely expelling activist workers might provide temporary relief, but such a policy is causing long term damage to the image that the Gulf has worked hard to build in the eyes of the world.
The GCC states (with the exception of Dubai) have also been ineffective at marketing themselves to global investors. The proper marketing skills, advice, strategies, and effort are vital to attract such investment. Instead of hiring three to five public affairs/lobbying firms in the West, the Gulf states should consider engaging marketing pros to do everything from providing an honest assessment of extant “one-stop-shop” investment offices to identifying needed legal reforms to organizing road shows.
Finally, the GCC states need to better understand that potential foreign investors, who are the purveyors of tech transfer, do not make their decisions based solely on a state’s model investment code or whether their chief host government interlocutor is a “good guy.” They look at land laws; labor regimes; the banking situation and rules for repatriation of capital; the quality of the workforce; the ICT environment; transportation nodes; and perhaps most important of all, the experiences—good and bad—of those foreign investors already on the ground. Working hard to minimize disputes with those foreign companies already committed to a partnership will reap benefits far beyond that particular deal.
Conclusion
This era of industrialization in the Gulf is an unprecedented opportunity for growth and also for reform. GCC states are blessed, by and large, with innovative leaders who not only have vast financial resources, but who understand the region’s opportunities and who want to do what is best for their people. I'm excited and delighted to have been involved in this region and look forward to watching—along with friends in the Gulf—what the future holds. This is a pivotal moment in the history of the region, and the way ahead is starting to take shape in each GCC state. The transformations will be profound and, I believe, successful.
[1] World Health Organization, World Health Report 2000- Health Systems: Improving Performance. Geneva: World Health Organization, 2000.
[2] Institute of International Finance, Inc. “Economic Report: Gulf Cooperation Council Countries,” 16 January 2008
[5] Karim Sabbagh, Joe Saddi, and Richard Shediac, “Oasis Economies,” Booz Allen Hamilton, 10 March 2008.
[6] Middle East North Africa Financial Network, “Oman: Unemployment in Arab World High,” Middle East North Africa Financial Network, 11 March 2008.
[7] It is interesting to note that hydrocarbon-based industries—especially liquefied natural gas—often create few jobs for nationals, at least at present, as professional positions are generally highly technical and go to expatriates.
[11] The World Bank, The Road Not Traveled: Education Reform in the Middle East and North Africa, Washington D.C.: The International Bank for Reconstruction and Development, 2007.
[12] David Pollack, “Kuwait’s New Political Crisis: Can Democracy Trump Sectarianism?”, The Washington Institute for Near East Policy, Policy Watch, 25 March 2008.
[13] Ragui Assaad and Farzaneh Roudi-Fahimi, “Youth in the Middle East and North Africa: Demographic Opportunity of Challenge?”, Population Reference Bureau, April 2007, 5.
[15] Karim Sabbagh, Joe Saddi, and Richard Shediac, “Oasis Economies,” Booz Allen Hamilton, 10 March 2008.
[17] Ragui Assaad and Farzaneh Roudi-Fahimi, “Youth in the Middle East and North Africa: Demographic Opportunity of Challenge?”, Population Reference Bureau, April 2007, 1.
[18] Institute of International Finance, Inc., “Economic Report: Gulf Cooperation Council Countries,” 16 January 2008.
[19] H.E. Sheikha Lubna Al Qasimi, “How Women are Empowered Through Business and Entrepreneurship,” Arab International Women’s Forum (Dubai), 10 December 2007.
[21] Muniria Al Ghamdi, “Breaking Barriers and Building Oppportunities,” Arab International Women’s Forum (Dubai), 9-11 December 2007.
[23] United Nations Development Programme, Regional Bureau for Arab States, Arab Human Development Report 2002, UNDP 2002
[24] Judy B. Rosener. America’s Competitive Secret: Women Managers, Oxford: Oxford University Press, 1995, 11-12.
“In 1989, to answer these questions, I conducted a nationwide study of men and women leaders in diverse professions. In particular, I focused on a group of successful women leaders to ascertain how they exercised power, what kind of leadership style they preferred, and what kinds of organizations they worked in. As a basis for comparison, I looked at a similar group of male leaders at the same time. That study formed the basis of my article, “Ways Women Lead,” which was published in the Harvard Business Review in late 1990 and became a lightning rod for debate about gender differences in a management context. I found that women, on average, exhibited and preferred the interactive leadership style, and men the command-and-control leadership style, and that the interactive style is particularly effective in flexible, nonhierarchical organizations of the kind that perform best in a climate of rapid change. My findings did not suggest that one style is better or worse than the other, only that men and women tend to lead differently and that interactive leaders tend to be most successful in nontraditional organizations.”
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