Diversification follows the 'Copycat' route
Sunday, 2 December 2007
Meena Janardhan from Dubai
At the beginning of the century, there were few reputed airlines, tourist destinations, investment opportunities and educational institutions to choose from in the Gulf region. Those that existed were unique and faced little or no competition.
However, an attempt to diversify the economies beyond non-oil resources --begun when oil prices dipped in the 1990s and pursued vigorously as oil prices threaten to shoot over the 100 US dollars per barrel milestone -- has resulted in duplication of models and competition, raising questions about their long-term sustainability.
A recent Citigroup report estimates that the Gulf Cooperation Council (GCC) countries have produced oil worth about two trillion dollars at spot prices since 2004. And more than one trillion dollars have been invested in infrastructure and real estate projects in the six GCC countries, with more than half these projects already under way.
The GCC, established in 1981 among Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE, form a regional common market that includes defence planning as well. Geographic proximity as well as free trade economic policies are factors that encouraged its establishment.
Dubai, the most famous of the seven-member UAE, is the best example of the post-oil age in the Gulf -- oil contributes only four percent of the emirate's gross domestic product, down from 50 percent in 1975. Though Bahrain started diversifying earlier, Dubai became a trendsetter by liberalising and expanding its economy faster than others.
Transforming the oil-rich capital of the UAE, 'Plan Abu Dhabi 2030' has declared projects and those under development worth about 400 billion US dollars, of which about 175 billion dollars have been earmarked for diversification. Apart from the manufacturing sector, large investments have been made in real estate and tourism projects, especially the 27-billion-dollar Saadiyat Island plan with the Guggenheim Museum.
Qatar has earmarked 130 billion dollars for investments in the next six years, with about 50 percent of it going into the non-oil sectors. And, the Saudi government has charted plans to privatise 20 state-owned corporations and institutions. The new economic cities in Rabigh, Hail, Madinah and Jizan, as well as the new industrial city in Jubail, are expected attract investments worth hundreds of billions of dollars.
Explaining the Dubai case, Eckart Woertz of the Gulf Research Centre told IPS: "It has successfully positioned itself as a trade and services hub in an oil-rich region. But as the term hub already indicates, there needs to be countries and regions between which the hub intermediates -- not everybody can be a hub. Bahrain, for example, has had a long experience in the banking sector, but it now faces stiff competition from Dubai."
The aviation industry exemplifies the 'copycat' culture with new airlines, airport expansions, as well as buying of new aircraft. Currently, the Emirates of Dubai, Etihad of Abu Dhabi, Air Arabia of Sharjah (all UAE), Qatar Airways, Bahrain's Gulf Air, Oman Air, Saudia, Kuwait Airways and Jazeera Airways (also of Kuwait) make up most of the GCC airlines industry.
According to estimates, nearly a third of the airport development projects across the Middle East, Africa and South Asia by value - 65 billion dollars - are being carried out in the UAE. Further, the 5.5-billion-dollar New Doha International Airport in Qatar and the 11.3 billion dollar upgrading effort of King Abdulaziz, Madinah and Tabuk airports in Saudi Arabia increases the value of ongoing projects in the Gulf to 37 billion dollars.
The competition also led Gulf carriers to place orders for 140 planes worth about 40 billion dollars from both Airbus and Boeing Co. during the Dubai airshow few weeks ago. While Emirates Airline ordered 93 commercial aircraft, Qatar Airways ordered 27 planes as part its plan to double its 58-strong fleet to 110 aircraft by 2010.
Citing the aviation industry as an example, Woertz said that the GCC population is not enough to feed the ongoing expansion plans. "It remains to be seen if there is enough space for so many airlines," the Dubai-based researcher told IPS.
The regional players are also investing in similar portfolios abroad. While Dubai negotiated buying into Nordic exchange operator OMX, the Qatar Investment Authority considered buying Nasdaq's stake in the London Stock Exchange. Recent estimates suggest that Saudi Arabia's foreign assets are worth at least 250 billion dollars, Kuwait's about 200 billion dollars, and the UAE's well over 500 billion dollars.
While Dubai had to diversify because of lack of oil resources, Qatar's story is intriguing, as is the case with Abu Dhabi. With modest oil reserves, Qatar gambled by investing heavily in the gas industry, and currently boasts of one of the highest per capita incomes in the world.
According to Steven Wright, assistant professor at Qatar University, "Copycat developments are visible in some sectors. It is a product of some of the GCC countries' desire to create lucrative regional hubs in the financial, services and industrial sectors. Competition is the next logical step."
Explaining Qatar's strengths, Wright said that the gas-rich country of less than a million people is "increasingly being seen as an attractive alternative to Dubai. It has a greater potential than Dubai in the long term given its investment potential owing to its huge energy reserves."
In 2004, Qatar took a leaf out of tourist promotion plans in Dubai and Oman and launched its own worth 15 billion dollars. In 2005, Qatar followed Dubai in partially opening its stock market to foreign investors, and has unveiled plans to develop into a regional centre for financial services, like in Bahrain and Dubai.
"Continuation of copycat projects," Wright told IPS, "will depend on availability of finances and an ability to outspend others, which Qatar has."
Others feel that blind replication of developmental plans will backfire in the long run. For example, they feel Qatar is at least 15 years late and it may not be really possible for it to catch up with Dubai.
The copycat culture is also trickling down to some of the other lesser known and resource-poor emirates in the UAE. Ras Al Khaimah, for example, has embarked on a plan to develop and upgrade the tourism and industry sectors, while several others like Sharjah, Ajman, Umm Al Quain and Fujairah are investing in free zones and real estate projects that could serve as cheaper alternatives to Dubai.
Martin Hvidt of the Centre for Contemporary Middle East Studies at the University of Southern Denmark and a proponent of the 'Dubai Model' approaches the developments differently.
"While competition between cities and nations is common around the world, the difference in this region is that since the leaders have a tribal orientation, competition appears to take a more personalised form," he told IPS.
"If Qatar or Abu Dhabi builds tourist facilities, high-quality offices or invests in airports, it doesn't necessarily mean they are copying Dubai," said Hvidt, who is currently a visiting scholar at the Gulf Research Centre in Dubai. "In fact, they are following what sensible economists would advice -- invest in those sectors of the world economy that are growing."
Hvidt also notes some subtle differences. "While Dubai has certainly branded itself as a 'business and tourism' destination, Abu Dhabi is emphasising 'culture' and Qatar 'education and science'.''
The growing view, however, is that while it is important to pursue economic diversification, it is equally important for the GCC countries to periodically assess their strategies against the changing business environment and make adjustments in order to avoid redundancy.
IPS
At the beginning of the century, there were few reputed airlines, tourist destinations, investment opportunities and educational institutions to choose from in the Gulf region. Those that existed were unique and faced little or no competition.
However, an attempt to diversify the economies beyond non-oil resources --begun when oil prices dipped in the 1990s and pursued vigorously as oil prices threaten to shoot over the 100 US dollars per barrel milestone -- has resulted in duplication of models and competition, raising questions about their long-term sustainability.
A recent Citigroup report estimates that the Gulf Cooperation Council (GCC) countries have produced oil worth about two trillion dollars at spot prices since 2004. And more than one trillion dollars have been invested in infrastructure and real estate projects in the six GCC countries, with more than half these projects already under way.
The GCC, established in 1981 among Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE, form a regional common market that includes defence planning as well. Geographic proximity as well as free trade economic policies are factors that encouraged its establishment.
Dubai, the most famous of the seven-member UAE, is the best example of the post-oil age in the Gulf -- oil contributes only four percent of the emirate's gross domestic product, down from 50 percent in 1975. Though Bahrain started diversifying earlier, Dubai became a trendsetter by liberalising and expanding its economy faster than others.
Transforming the oil-rich capital of the UAE, 'Plan Abu Dhabi 2030' has declared projects and those under development worth about 400 billion US dollars, of which about 175 billion dollars have been earmarked for diversification. Apart from the manufacturing sector, large investments have been made in real estate and tourism projects, especially the 27-billion-dollar Saadiyat Island plan with the Guggenheim Museum.
Qatar has earmarked 130 billion dollars for investments in the next six years, with about 50 percent of it going into the non-oil sectors. And, the Saudi government has charted plans to privatise 20 state-owned corporations and institutions. The new economic cities in Rabigh, Hail, Madinah and Jizan, as well as the new industrial city in Jubail, are expected attract investments worth hundreds of billions of dollars.
Explaining the Dubai case, Eckart Woertz of the Gulf Research Centre told IPS: "It has successfully positioned itself as a trade and services hub in an oil-rich region. But as the term hub already indicates, there needs to be countries and regions between which the hub intermediates -- not everybody can be a hub. Bahrain, for example, has had a long experience in the banking sector, but it now faces stiff competition from Dubai."
The aviation industry exemplifies the 'copycat' culture with new airlines, airport expansions, as well as buying of new aircraft. Currently, the Emirates of Dubai, Etihad of Abu Dhabi, Air Arabia of Sharjah (all UAE), Qatar Airways, Bahrain's Gulf Air, Oman Air, Saudia, Kuwait Airways and Jazeera Airways (also of Kuwait) make up most of the GCC airlines industry.
According to estimates, nearly a third of the airport development projects across the Middle East, Africa and South Asia by value - 65 billion dollars - are being carried out in the UAE. Further, the 5.5-billion-dollar New Doha International Airport in Qatar and the 11.3 billion dollar upgrading effort of King Abdulaziz, Madinah and Tabuk airports in Saudi Arabia increases the value of ongoing projects in the Gulf to 37 billion dollars.
The competition also led Gulf carriers to place orders for 140 planes worth about 40 billion dollars from both Airbus and Boeing Co. during the Dubai airshow few weeks ago. While Emirates Airline ordered 93 commercial aircraft, Qatar Airways ordered 27 planes as part its plan to double its 58-strong fleet to 110 aircraft by 2010.
Citing the aviation industry as an example, Woertz said that the GCC population is not enough to feed the ongoing expansion plans. "It remains to be seen if there is enough space for so many airlines," the Dubai-based researcher told IPS.
The regional players are also investing in similar portfolios abroad. While Dubai negotiated buying into Nordic exchange operator OMX, the Qatar Investment Authority considered buying Nasdaq's stake in the London Stock Exchange. Recent estimates suggest that Saudi Arabia's foreign assets are worth at least 250 billion dollars, Kuwait's about 200 billion dollars, and the UAE's well over 500 billion dollars.
While Dubai had to diversify because of lack of oil resources, Qatar's story is intriguing, as is the case with Abu Dhabi. With modest oil reserves, Qatar gambled by investing heavily in the gas industry, and currently boasts of one of the highest per capita incomes in the world.
According to Steven Wright, assistant professor at Qatar University, "Copycat developments are visible in some sectors. It is a product of some of the GCC countries' desire to create lucrative regional hubs in the financial, services and industrial sectors. Competition is the next logical step."
Explaining Qatar's strengths, Wright said that the gas-rich country of less than a million people is "increasingly being seen as an attractive alternative to Dubai. It has a greater potential than Dubai in the long term given its investment potential owing to its huge energy reserves."
In 2004, Qatar took a leaf out of tourist promotion plans in Dubai and Oman and launched its own worth 15 billion dollars. In 2005, Qatar followed Dubai in partially opening its stock market to foreign investors, and has unveiled plans to develop into a regional centre for financial services, like in Bahrain and Dubai.
"Continuation of copycat projects," Wright told IPS, "will depend on availability of finances and an ability to outspend others, which Qatar has."
Others feel that blind replication of developmental plans will backfire in the long run. For example, they feel Qatar is at least 15 years late and it may not be really possible for it to catch up with Dubai.
The copycat culture is also trickling down to some of the other lesser known and resource-poor emirates in the UAE. Ras Al Khaimah, for example, has embarked on a plan to develop and upgrade the tourism and industry sectors, while several others like Sharjah, Ajman, Umm Al Quain and Fujairah are investing in free zones and real estate projects that could serve as cheaper alternatives to Dubai.
Martin Hvidt of the Centre for Contemporary Middle East Studies at the University of Southern Denmark and a proponent of the 'Dubai Model' approaches the developments differently.
"While competition between cities and nations is common around the world, the difference in this region is that since the leaders have a tribal orientation, competition appears to take a more personalised form," he told IPS.
"If Qatar or Abu Dhabi builds tourist facilities, high-quality offices or invests in airports, it doesn't necessarily mean they are copying Dubai," said Hvidt, who is currently a visiting scholar at the Gulf Research Centre in Dubai. "In fact, they are following what sensible economists would advice -- invest in those sectors of the world economy that are growing."
Hvidt also notes some subtle differences. "While Dubai has certainly branded itself as a 'business and tourism' destination, Abu Dhabi is emphasising 'culture' and Qatar 'education and science'.''
The growing view, however, is that while it is important to pursue economic diversification, it is equally important for the GCC countries to periodically assess their strategies against the changing business environment and make adjustments in order to avoid redundancy.
IPS