After the Sheikhs: The Coming Collapse of the Gulf Monarchies (10 page)

The pioneer of this strategy is Dubai, which launched its Jebel Ali Free Zone in 1985. Within a few years the zone had attracted several hundred companies, many of them from Europe, North America, and Asia. In 2007 it even became the primary headquarters of the formerly Texas-based multinational, Halliburton. Since then Dubai has set up other zones, many of which have been sector-specific and similarly popular. In 2000 the Dubai Internet City and Dubai Media City were launched, respectively for IT and media-related companies. And in 2003 Dubai Healthcare City was set up to serve as a base for foreign medical companies and services, including the Harvard Medical School,
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while Dubai Knowledge Village was established to house branches of several international universities, most of which concentrate on offering postgraduate degrees to the emirate’s substantial expatriate population. Other UAE emirates, including Sharjah and Ra’s al-Khaimah, have followed Dubai’s lead, having established smaller versions of Jebel Ali. And elsewhere in the Gulf there has been the Bahrain Logistics Zone, the Salalah Free Zone in Oman, and the Qatar Science and Technology Park, among others.

Similarly pioneered by the more energy-scarce Gulf monarchies have been the region’s tourism, financial, and real estate industries. With regards to tourism, Dubai was again the frontrunner, with dozens of luxury hotels having been built over the past fifteen years, including the iconic, seven star Burj Al-Arab. Since then millions of tourists have been attracted to the emirate, most of whom have favoured the winter sun, tax-free shopping festivals, and a range of sports and music events—many of which are world-class. In 2010 the government claimed that nearly nine million visitors had stayed in the emirate’s hotels.
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Some other Gulf monarchies have followed suit, notably Oman, Bahrain, Qatar, and Abu Dhabi, the latter having opened its lavish Emirates Palace hotel in 2005 and claiming to have hosted nearly two million tourists in 2010.
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Although Kuwait was the first Gulf state to develop a significant financial sector, it was really Bahrain that set up the region’s first international financial centre—now housed in Manama’s Financial Harbour. Established in 2004, the Dubai International Financial Centre signalled the UAE’s first major attempt to challenge Bahrain’s position. Envisaged as a potential bridge between the time zones of other leading financial centres
such as London, Hong Kong, and Singapore, the DIFC has also served as something of a free zone, with multinational financial companies locating their Middle East branches within its jurisdiction. More recently, recognising the economic benefits and prestige associated with hosting such centres, other Gulf monarchies have also attempted to develop financial hubs, albeit along more limited lines. In 2005 the Qatar Financial Centre was set up, primarily to provide a link between energybased companies and global financial markets. And in the near future Abu Dhabi’s presently modest financial centre will move to a much larger Mubadala-constructed campus on Sowwah Island.

More problematic has been the nascent real estate sector. For some years it was a major contributor to the non-oil related GDP of several Gulf monarchies, but following the 2008 credit crunch the sector contracted sharply due to limited credit and considerable oversupply. As the pioneer, having allowed foreign nationals to purchase real estate since 1997 on the murky basis of long leases and then ill-defined freehold status,
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Dubai has since experienced the greatest reversal of fortunes, with its over-extended real estate sector and more than $170 billion in cancelled projects
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now likely to hamper the emirate’s economic development for years to come. The tipping point came in late 2009, when its largest real estate developer—Nakheel—was unable to service substantial debts. This led to plummeting international confidence in the government of Dubai’s ability to rescue state-backed developers, with the situation only stabilising following a substantial $20 billion loan package from Abu Dhabi.
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Symbolically, Abu Dhabi’s assistance appeared to be delivered with political strings attached, as when Dubai’s much vaunted Burj Dubai—the world’s tallest skyscraper—was finally opened in early 2010, its name was abruptly changed to Burj Khalifa to honour Abu Dhabi’s ruler, Khalifa bin Zayed Al-Nahyan. Recent indications are that Dubai remains in trouble, with even the ruling family-backed Dubai Holdings having had to restructure $2.5 billion of debt in early 2012.
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Meanwhile other Gulf monarchies have also experimented with real estate, although on a much smaller scale, with both Bahrain and Qatar launching projects in recent years, Oman seems to have gone furthest in supporting full freehold ownership for foreigners, following fresh legislation in 2006.
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As with the variance in hydrocarbon exports and sovereign wealth funds, the numerous diversification efforts and their relative performances
have further underlined the important economic differences that now exist between the Gulf monarchies. The non-oil sector in resource-scarce Bahrain now accounts for nearly 90 per cent of its GDP,
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while in the UAE’s case it is approximately 70 per cent, mostly as a result of Dubai’s efforts.
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In contrast, the non-oil sectors in Saudi Arabia and Oman account for about 55 per cent of GDP,
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and in both Kuwait and Qatar the non-oil sectors account for less than 50 per cent of GDP.
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The varying levels of foreign direct investment in the Gulf monarchies also reflect the differing approaches to diversification, with Saudi Arabia’s economic cities and other developments being responsible for attracting close to $193 billion in investments in recent years, and with the UAE’s various projects—again mostly in Dubai—having attracted $76 billion. In comparison, both Qatar and Bahrain have attracted less than $20 billion in foreign direct investment, while Kuwait—again encumbered by political instability—has only managed $130 million in investments.
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Overall, the significant economic differences between the six states are clearly reflected by the widening gap in GDP per capita in the region. With a total population of less than one million and with substantial gas exports and sovereign wealth, Qatar’s GDP per capita now stands at $179,000—the highest in the world. Although more modest, with a population of about five million, the wealthy UAE also has a high GDP per capita of about $50,000, which is about the same as Kuwait, which has a population of just over 2.5 million. At the lower end of the scale, resource-scarce Bahrain, with a population of 1.2 million, has a GDP per capita of $40,000, while Oman, with a larger population of three million only has a GDP per capita of $25,000. Despite its sizeable hydrocarbon revenues and large sovereign wealth funds, Saudi Arabia’s GDP per capita is now actually the lowest in the region—$24,000—mostly due to its considerably larger population of 27 million.
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This means that the Gulf monarchies, despite so many obvious similarities, are becoming an increasingly unusual cluster of countries with half of the group being well within the world’s top ten—in terms of GDP per capita—while other members remain firmly outside the top fifty, and can at best be considered middle income economies.

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EXPLAINING SURVIVAL—DOMESTIC MATTERS

The survival of the Gulf monarchies to date—at least on a domestic level—has been predicated on the unwritten, unspoken ruling bargains or social contracts that exist between the ruling families and their populations. Together with the neo-patriarchal governments that have formed, these bargains and their constituent strategies have usually been enough to placate most citizens, satisfy the needs of resident expatriates and guarantee some degree of political acquiescence from the population, thereby allowing the monarchies to avoid repression or coercive ‘maintenance of the polity’.
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Given the economic and demographic disparities between the six Gulf monarchies, these ruling bargain components differ from state to state and, as circumstances have changed; new components have been added while others have been withdrawn. Nevertheless within all of these highly dynamic bargains there are readily identifiable patterns and much common ground.

All of the Gulf monarchies have emphasised the state being first and foremost a distributor of wealth rather than an extractor, and arguably this remains the central pillar of monarchical survival. Drawn mostly from revenues derived from the region’s hydrocarbon concessions or from rent generated by more recent post-oil activities, the largesse of these modern day rentier states has undoubtedly provided their ruling families and governments with considerable ‘eudemonic legitimacy’—that is, legitimacy derived from economic well-being and the provision of
social welfare.
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Closely connected to this component has been the ability of these states to boost massively the national identity and social status of their citizens or ‘locals’—immediately identifying them as recipients of distributed wealth and often positioning them in advantageous business positions. In the wealthiest monarchies, this automatically elevates citizens above all other sections of the population. Although technically not part of this ‘rentier elite’, the millions of expatriates living and working in the Gulf states are often similarly satisfied, as most are able to enjoy a competitive, tax-free income, and usually plan on returning home after a few years. Those that do not conform can easily be suppressed and deported.

Non-economic components of the ruling bargains also matter greatly, especially in those monarchies with a declining ability to distribute wealth. In many cases, rulers and their heirs have invested much time and effort in cultivating personal resources or even perpetuating personality cults; often based on sporting prowess, scholarly achievements, or celebrity status. The aim, it seems, has been to sustain an air of traditional authority for these individuals to keep governing their people. Connected to this has been the generous funding and support for museums and other projects that emphasise the Gulf monarchies’ tribal heritage and pre-oil history, often serving as ‘living memories’ of how the incumbents can trace their lineage back to key founding fathers. Similarly important, especially in Saudi Arabia, but apparent in all six states, has been the exploitation and cooption of religion, mostly—but not exclusively—Islam. Ruling families have worked hard to generate an image of piety, while their governments have carefully funded and controlled most parts of the clerical establishment, thus heading off religious opposition. Other components have also recently been experimented with, often with mixed results. Projects and initiatives focusing on the environment or green energy, for example, have recently been proving popular. Despite the region’s massive hydrocarbon production and extremely high carbon footprint per capita, they have served to win favourable headlines for the dignitaries involved.

Distributing wealth

Since the 1960s the traditional system of tribal leaders giving gifts to their subjects, friends, and enemies in exchange for loyalty or faithful service
has been massively advanced. The verbal instructions or small chits of paper issued by sheikhs or their secretaries to grateful petitioners were quickly replaced by official documents drawn up by rulers’ courts or new bureaucrats as hydrocarbon revenues allowed the nascent states to transfer wealth directly to their citizens and establish the most generous welfare states in the developing world, underpinned by subsidised utilities, fuel, and foodstuffs. One of the more visible benefits for citizens was the provision of government housing. Although fairly modest in the 1960s and 1970s, the free dwellings nonetheless allowed for air-conditioning and the connection of refrigerators, televisions, and other appliances. In the poorest parts of the region, especially in Saudi Arabia and Oman, the effect was to transform the lives of thousands. Many older Omanis today, for example, often state that ‘before Qaboos there was nothing’, referring to the poverty and lack of basic amenities prior to Qaboos bin Said Al-Said’s succession in 1970. In more recent years, the quality of free housing, especially in the smaller, richer Gulf monarchies, has dramatically improved, while expatriates have often moved into the original government housing. Recipients in these states can now expect sizeable apartments and villas, usually with one bedroom for every child. In some cases, utilities are also provided for free, as are telephones.
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In Qatar, for example, the Barwa Housing Project has provided hundreds of families with reasonably high quality free accommodation complete with parks and playgrounds. The housing is available only to Qatari citizens, but allows for a relatively high monthly income threshold of $4,400.
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Similarly, and more extensively in the UAE, the Sheikh Zayed Housing Programme provides ‘deserving UAE national families’ with three choices: either a government-provided house, an interest free loan to buy a new house, or a grant to refurbish or maintain an existing residence. Most of the government-provided houses are of good quality, especially in the wealthiest emirate of Abu Dhabi, and the quality of free houses in the poorer, northern emirates, has been improving of late. In 2008 the programme’s annual budget was increased to $350 million, and an announcement was made that over 40,000 new villas would be constructed for UAE nationals over the next four years at a cost of $4 billion.
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In parallel Dubai now has its own such housing scheme, unsurprisingly named after its ruler—the Muhammad bin Rashid Housing Programme—and in early 2011 more than 700 new homes were allocated to UAE nationals at a cost of over $250 million. Aiming to ‘offer
appropriate accommodation to Emiratis of all social classes and meeting their basic needs, especially a dignified housing’ the programme has little in common with government housing in other parts of the world, as the units are of nine designs ranging from three to five bedrooms and have façades in different architectural styles including Islamic and Andalusian. Moreover, the beneficiaries have been receiving text message construction updates direct from the developer.
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