Strategies of Reform: Saudi Arabia and the United Arab Emirates
Since their inception, the Gulf monarchies have cultivated their oil wealth as a means of geopolitical power. They have leveraged this power for their own development, while insulating themselves from the destabilizing elements that have wreaked havoc on the rest of the Middle East. Distribution of oil wealth is at the core of the social contract in which citizens acquiesce to limited freedoms in exchange for the economic rewards. The integral role oil has played in shaping institutions in the Gulf has led to a resource dependency.
As American shale and other alternative energies expand their market-share, the post-oil era looms; rentier states who have built their fortunes on the black gold must now restructure their economies. Strategic reforms are necessary for states to maintain political, economic, and social stability as the shifting global market disrupts traditional means of geopolitical power. Saudi Arabia and the United Arab Emirates (UAE) are pursuing different policies to retain control of their political economies in the face of 21st century challenges.
Conscious of these structural distortions, Saudi Arabia and the UAE have outlined alternate plans of addressing reform. The key is to diversify away from oil and minimize reliance. As both states begin to restructure their institutions, they must grapple with the socio-political consequences that come with change. Saudi Arabia’s Vision 2030 and the UAE’s Abu Dhabi Economic Vision (ADEV) 2030 lay the groundwork for policymakers to achieve their respective goals.
Saudi Arabia’s Vision 2030, unveiled in April 2016, is an ambitious document that builds the kingdom’s future on three pillars. The first is a reaffirmation of Saudi Arabia’s identity within the Islamic world. The second is to structure the kingdom as a global investment powerhouse. As for the third pillar, the kingdom hopes to establish Saudi Arabia as a global hub, utilizing its location between three continents: Asia, Europe, and Africa.
It is telling that Crown Prince Mohammad bin Salman, the architect behind Vision 2030, situated the first pillar on Islam. As restructuring inevitably leads to economic displacement, creating a greater national identity around Islamic principles may help quell unrest. Much of the document is conceptual, blending rhetoric with vague aspirations. The document, however, also reflects Saudi Arabia’s economic ambitions, which include privatizing government services, raising the share of non-oil exports, and attracting more foreign direct investment.
The crown prince has made other moves toward transforming the economy, such as implementing austerity measures. He cut the state budget and public sector wages, and froze several government contracts. Perhaps his most significant decision was to open Saudi Aramco, the state-owned oil company, to an IPO. While details are still forthcoming as negotiations are made, Mohammad bin Salman has signaled a willingness to sell off as much as 5% of the company’s stock to be invested in a sovereign wealth fund and redirected toward non-oil sectors. It is too early to make any definitive judgments on the consequences of these reforms. But the government’s willingness to make such drastic changes demonstrates how necessary they are.
By contrast, the UAE’s Abu Dhabi Economic Vision 2030 is more nuanced and premeditated. Launched in November 2008, the initiative’s stated mandate is “to conduct an exhaustive assessment of the key enablers for economic growth” and “to create a comprehensive long-term economic vision, with explicit targets, to guide the evolution of the Abu Dhabi economy through to the year 2030.”
In diversifying beyond oil, the UAE has been an outlier, thanks to Dubai’s foresight. Dubai, which reached peak production in the 90s, has been a trendsetter in investing in non-oil sectors, leading others to adopt the ‘Dubai Model’ of diversification. The ADEV is broken down into 5-year cycles, with realistic benchmarks and viable objectives.
The ADEV focuses its goals on four key priorities. The first is economic development. Diversification is fundamental. By broadening the range of industries, policymaker hope to create high-paying jobs for citizens and bring more women into the workforce. The second is social and human resources development, which is considered a crucial driver of growth. Policymakers aim to invest in education and health services, to generate more productive workers. The third is infrastructure development and environmental sustainability. Here, the objective is to establish a well-managed urban environment that stimulates Emirate-wide growth, rather than just the capital. The fourth priority is optimization of government operations. By reorganizing bureaucratic structures, policymakers seek to improve the efficiency and accountability of government departments. To achieve this, the UAE will streamline state services by utilizing new technologies. Ultimately, the aim of the UAE’s reforms is to invest in its citizens and its cities to ensure long-term economic prosperity.
Saudi Arabia and the UAE have taken different strategies to restructure their economies in the long-run, instituting reforms to face the challenges of oil dependency. Decades of relying on an oil economy have created several structural distortions that will hamper growth if they are not addressed. Reform is imperative for both Saudi Arabia and the UAE, even if such restructuring comes with political, social, and economic costs. Which vision of reform will be more successful remains to be seen, but the Gulf Monarchies are certain to change.