Globalization in the Gulf Cooperation Council

Globalization in the Gulf Cooperation Council Chapter 3 Globalization in the GCC: a political and economic analysis Political Aspect The creation of the GCC was a direct result of regional political events of that time. The idea of the need for the union of the major independent states of the gulf had been floating around since the early 1970s. Three main reasons leading to the formation of the gulf cooperation council included: Border disputes between Arab states and the royal families. The Iranian revolution The invasion of Iran by the Soviet Union. The Gulf States apart from Saudi Arabia are small population states. First we look into border disputes. The creation of Bahrain and Kuwait was lead to the demarcation of boundaries which the families Arab ruling families did not like. The strained relations were held together only by their common links religion and language. The ruling families had close bonds with families of other states and therefore they did not like the idea of having to confine their selves to a border (Bà ©atrice Maalouf, 2006). Secondly, the Arab peninsula felt safe from Iran as long as the Shah of Iran was in control. This was because America (an Arab friend) was dictating the policies of Iran during the shah’s rule. After the Iranian revolution, came the religious leaders. They had a different set of ideology and religious beliefs than the Arab states. Since Iran was a regional military strength, this further made the Gulf States insecure and further highlighted the need for a united front by the Arab peninsula (Bà ©atrice Maalouf, 2006). Lastly, the invasion of a Muslim Afghanistan by the atheist Soviet Union was viewed as a threat as Yemen was also a socialist country and capture of Afghanistan meant that the communists were gaining strength and this was another form of insecurity for the region as the Arab states had supported the USA in the cold war which made them rivals of the Soviet empire. The Soviet threat had to be faced collectively and therefore it was imperative that a union of the Arab states be created. The last straw was the Iran- Iraq war which started in 1980. It affected trade routes of the kingdom of Saudi Arabia. Also Iraq, which was a friendly Arab country, was being affected. And this threat needed to be faced collectively, therefore in 1981, the Gulf States, united themselves in the form of GCC (Bà ©atrice Maalouf, 2006). The charter known as the cooperation council charter was signed by all the member states, including Kingdom of Saudi Arabia, UAE, Bahrain, Kuwait, Qatar, and Oman. The charter listed cultural, social and political and economic reasons along with commonality of religion, language and customs for this union. The articles in the charter defined the need to develop independence and self sustainability in political, economic and financial affairs (Bà ©atrice Maalouf, 2006). Since the creation of the council, the GCC has gradually tried to instill its authority in the region and work for change for the betterment of the states. The council states have developed at remarkable pace in the fields of media technology, developmental projects, financial institutions and security of the region (Bà ©atrice Maalouf, 2006). The first visible of the impact of the unified common GCC policy was visible globally during the Iraq invasion of Kuwait in 1990. The council made possible it’s liberation, through the help of the world’s help, The council called for a meeting of the organization of the Islamic conference (OIC) and this lead to GCC requesting for and then passing resolution in the united nation’s security council, UNSCR 660 (1990). The council since the 1990 has tried to help in conflicts resolution in many countries, including Somalia, Palestine Israel, Lebanon Israel etc. the GCC is also in the forefront in helping the countries in need of economic aid for rebuilding. The countries insisted on the rebuilding of Iraq through donations, On the country basis, the GCC have planned free trade agreements with China, Pakistan and India. They already have FTAs with Lebanon, Turkey and Syria in the region and Japan in the East Asian region. The GCC also has signed pacts and agreements with regional organizations like the European Union (EU). The EU and the GCC have signed declarations of cooperation with each other and are working toward a FTA (Bà ©atrice Maalouf, 2006). Non-governmental, international and regional organizations The economic and developmental transformation of the GCC countries along with other Arab countries of the region has been due to assistance from international institutions and donor agencies of the region. These agencies have been providing, financial, technical and organizational help to the states for formulating better strategies for stable development of the Arab states specifically and the gulf region in general. The United Arab Emirates has enough financial capital for funding the preparation of NES and NEAP. Even so, the gulf state has been seeking and receiving technical help from international and regional organizations in order to ensure that their developmental programs are stable and sustainable. To ensure stable growth and development in the gulf and Arab countries, availability of financial assistance is important, especially for countries not exporting oil (Khordagui H, 2004). â€Å"International donor organizations working in the region include: Islamic Development Bank (IDB) Arab Fund for Economic and social Development (AFESD) Kuwaiti Fund for Development (KFD). † (Khordagui H, (2004). Apart from development on the infrastructure level, certain organizations have been providing the gulf countries with help in a wide range of activities including capacity building, legislative drafting, policy analysis etc. Usually the assistance concerning the capacity building assistance measures is being undertaken by the regional organizations in order for there to be regional benefits of these national initiatives (Khordagui H, 2004). â€Å"These institutions include: â€Å"METAP: a cooperative initiative between the Commission, the European Investment Bank, UNDP (the Arab Bureau the Capacity 21 Unit), the WB – has provided capacity building assistance to the Mediterranean region for nearly the past decade† (Khordagui H, 2004). â€Å"Med-Policies Initiative – part of the METAP program, but funded by the WB in coordination with ESCWA – is building national capacity regional awareness on economic environmental policy-making† (Khordagui H, 2004). â€Å"The Center for Environment and Development in the Arab Region and Europe (CEDARE) is an independent, nonprofit regional institution is working to increase the capacity of national institution to enhance environmental management and SD† (Khordagui H, 2004). Social Development and Civic Society Saudi Arabia is the biggest member of the GCC. It has the largest population and the biggest oil reserves. Therefore one would expect that with all in the capital inflow, political reforms would follow and that would lead to maturation of the state toward a free society. In Saudi Arabia, monarchy rules the state. There is no parliamentary system and there were not political parties, trade unions or voluntary associations before 2003. There is a counsel of chambers of commerce and it acts as an umbrella between the government and the society as a whole (Democratic governance Arabia, 2008). â€Å"The UAE is fast becoming the economic hub of the GCC. Therefore there needs to be civic reform and State’s institutional development needs to be the foremost priority of the state. There can be no assembly of public nature without prior government’s approval. The first human rights organization was first formed in the country in 2006. Its founding members include people of diverse professions from far corners of the society.† (Democratic governance Arabia, 2008) Political parties are still illegal in the kingdom. Any person or organization which tries of voice an opinion against which is against or different from that of the monarchy is quickly shut down. There are two opposition movements working from outside Saudi Arabia. These include the Committee for the Defense of Legitimate Rights (CDLR) and the Movement for Islamic Reform (MIRA), in Saudi Arabia. Activists who attempted to demonstrate in a peaceful manner against the monarchy were arrested and their activities deemed unislamic (Democratic governance Arabia, 2008). In order to conform to the rest of the world and also due to the internal needs and external pressures led the Saudi government to initiate the civil society creations in the kingdom in 2003. Unlike Saudi Arabia, the United Arab Emirates are governed by both a traditional as well as a modern form of a government. The UAE is at an advanced level of institutionalizing their government departments. The political system of UAE can be thought of a flexible system conforming and adaptive to the democratic ways of governance. The UAE does not allow the existence of political parties per say, but the ruling elite and their positions in the government are determined even today by their positions in their respective tribes and dynasties. In order to keep their authority and position the rulers are required to ensure that they retain the people’s loyalty which has to be ensured by keeping with the principle that the people should have easy access to the rulers and they could voice their opinion or grievances in meetings. This tradition of holding assembly of citizen’s frequently is still active today and ensures that people are not neglected. Decisions made in these meetings sometimes even determine policy changes at the highest levels. On the other side, the modern institutions are capable of dealing with more complex and large scale problems and concerning the state. Therefore the dual mode of governance in the UAE has molded itself in the past decades to optimally suite the citizens of the state as well as the state itself (Democratic governance Arabia, 2008). The Saudi Journalist’s association was founded to look after the interests of the journalists of the country, it is mostly an independent organization and works without any governmental interference. A media regulatory authority has been in place since 1982 in Saudi Arabia. Even though the print and the television media is well developed and well circulated in the kingdom, it is mostly government regulated. The ministry of information has the authority to appoint the editor in chief of all the circulating newspapers and can remove anyone they feel does not conform to their standards. Moreover, the government owned Saudi Press Agency and the ministry of information control the print and the Broadcast media. An independent organization to look after the human rights abuses paved its way into formation in 2004 in the kingdom. It is called The National society for Human rights and it has the job of keeping track of abuses related to employment, judiciary, domestic violence, prisons etc. There has been a history of complaints in the gulf about the human rights abuses related to non payment of wages to the workers and maid, mal treatment sexual harassment. Since 2005, the ministry of labor of Saudi Arabia announced that it was ready to receive complaints of the above mentioned nature from anyone and would be ready to prosecute anyone found guilty of the offense (Democratic governance Arabia, 2008). Unlike Saudi Arabia, UAE does not posses any human rights groups and independent trade unions are still banned in the state, its chamber of commerce and UAE Women’s Federation are umbrella organizations with the responsibility to keep checks and balances of all sorts. The latter is assigned to prepare the women population, which makes constitutes a larger chuck of the population, to face the challenges of the 21st century and to train them to become active participants in the society (Democratic governance Arabia, 2008). The gulf countries are enjoying economic boom from the high oil prices and they are taking advantage of this by using this capital for development of their respective states and region in general. Local and international corporate businesses have established themselves well into the societies. With this comes corporate social responsibility. This means that businesses have the responsibility to encourage and participate in any way they can, in the social development of the region. The term corporate social responsibility (CSR) can be explained as the commitment by the corporate sector to behave in an ethical manner and participate in the economic development along with providing a better quality of life for the workforce, their families and the society at large (Democratic governance Arabia, 2008). â€Å"In the GCC, although there are initiatives of corporate contribution to the society as a whole, there is still a greater need of formalizing it to ensure that the pace of development in the education, health, and housing and environment sectors is improved on sustainable grounds. A major factor in CSR activities is the governments strategy. There are governments within the GCC region that feel that social sectors such as education, health, housing and environment are the sole responsibility of the governments or rulers, resulting in little effort by the corporate sector in these areas. A very relevant example of this is the Kingdom of Saudi Arabia, the largest country within the GCC, where there are hardly any well-managed CSR initiatives† (Giving Back: Corporate Social Responsibility in the GCC, 2007). Political Reforms The political systems of the gulf countries are in their infancies. Neil Patrick a senior analyst noted in a seminar about political reform in 2006, that there was a need to identity and treat all the GCC countries individually and recognize that the political structures and in different stages of maturation in each of these countries. For example, political reforms were first initiated by Kuwait, and currently, the have a well established working parliament. In contrast, the UAE has only recently started raising the idea of electoral participation. Other countries including Oman, Qatar and Bahrain etc all have political councils, whose members are usually sheikhs or members of the royal families. These councils are mostly advisory councils with limited mandates (Political Reform in GCC countries, 2006). Historically the infrastructure and organization required for the development and reform have been absent from the GCC states and royal families have been the only rulers in most of these states. According to Neil Patrick, the monarchies and the â€Å"Sheikdoms† operate in away in which taxing the citizens have become very difficult. They continue to use the earnings from the oil profits to satisfy the civilian population and run the state and this ensures at least in the short term that their rule will not be challenged. As the society within these countries has become more and more educated, and as the states have gradually opened up to the democratic world, the world, the need for change or reform has been seriously felt. Over the past couple of decades, the younger generations, unlike those of the past have become more educated, more aware of their rights as members of the society. This passive but steady demand for reform and more freedom has applying internal pressure on the ruling elite for change. On the other hand, opening up of the country for investment and development has lead to the democratic forces in the form of USA and the EU to exert multifaceted pressure on the Gulf States for democratization and liberalization. â€Å"Moreover, globalization, and particularly economic globalization, intensifies pressures on rulers to be more transparent and accountable in the administration of state resources† (Political Reform in GCC countries, 2006). It has been noted that over the past two decades, continued economic growth, wealth distribution and emergence of a middle classes with a strong voice has been the cause for gradual change towards liberalization and reform. â€Å"Economic change effectively creates alternative bases of power and constituencies that will contest the political status quo and claim a voice in the decision making process. It is therefore important to assess whether the distribution of rent in the Gulf States has led to an accumulation of wealth in a middle class with an interest in reform and enough power to begin making political demands† (Political Reform in GCC countries, 2006). Access to information International community has promoted information and communication technologies in the recent past as a means of providing a source of liberalization in the gulf countries. It has been thought that by integrating ICT in their developmental projects for these countries, the monopoly of the state on media and information control. The results although have been a success to some extent, but have failed to influence the society as the west once hoped. Case in point the spread of news channels like Al jazeera from Qatar. The coming on air of this and other channels has had an impact of providing the society with free uncensored and uninhibited view of the Arab views and feelings. The aim of the west was to ensure that the liberalization and opening up of the gulf would lead to the Gulf States, conforming to their west’s likings. This opening of the media has lead to voice to the civic society but their views of the west have not softened as the west had hoped. The governments still have control over other aspects of the information. This is clearly seen in the case of provision of the internet. Even though the states provide internet access, this is limited and poorly distributed. On the pretext of conserving cultural and religious values, the states like the Saudi Arabia have been exerting media filtration and censorship by using filtering software and denying access of any information which might influence their society’s view of them. The economic aspect Trade and investment liberalization Human development It has been long claimed that the gulf country rely heavily on their revenues from oil production to support them. Globalization is fast becoming the new reality in the GCC countries. This is has led to the gulf countries to tread on uncharted territory. The trend towards globalization and the threads attached to it can have an effect on the very lives of the citizens these countries cater for. Globalization can bring the promise of open markets and opportunities to have access to all the tools a country needs for development. On the other hand, globalization can also lead a country towards marginalization. â€Å"The relation between human development and globalization can be visualized in the following manner: the effects of globalization on a developing economy, such as the Arab Gulf countries, could be backwash effects or spread effects. The backwash effects means that globalization could contribute to and the source of human deprivation through processes of marginalization (of the country) and social exclusion (of individuals and groups based on social, ethnic, occupation/ skill, age or gender grounds)† (Jiyad, A. M, 1998). On the flip side, globalization can also lead to multitude of benefits. Globalization, through investment and production, can lead to jobs creation and greater choices for the public in terms of consumption and all of this can further enhance the human development. Globalization leads to foreign direct investment FDI, which in turn leads to capital inflow in the country and this can be used for developmental projects in a developing country. The steps towards globalization include: Liberalization of the local economy. Liberalization of state property ownership (privatization). Regionalization and multilateralism. Step 2 or privatization in the Arab countries has been a result of old as well as new policies. The privatization policy became a national policy in Oman in 1996. Information and communication revolution â€Å"The policies include provision related to what to privatize first (productive service sector), partial privatizations, transparency, competition, FDI, protection of the environment, public relation, and privatization proceeds. The guidelines include provisions related to bids selection, public offering, taxes, loans, employees and management†(Zineldin, M, 1998). The Saudi Arabia had been considering privatization and policy since early 90s. The 1990-1995 development plan envisioned a privatization process, a stock exchange for trading, privately owned construction and development companies, privatization some banks etc. In 1997 the ministry of commerce decided to expand the role played by the private industry in the kingdom’s economy by privatizing and selling government held assets worth more than $7 billion. The main aim for privatization and liberalization was to encourage private investment in the country’s economy, to provide lucrative opportunities for local as well as foreign companies to invest in domestic ventures. They also aimed to provide jobs to the ever increasing number youths in the country and to bring the unemployment rates down. They wanted to broaden and diversify the economic base and increase its markets competitiveness level to meet the standards set by the WTO for its membership (Jiyad, A. M, 1998). Abu Dhabi and the UAE have highlighted the need to privatize approximately 40 or so industries. After a study conducted by the World Bank, it recommended that Kuwait privatize at least 7 small enterprises, whose total vale was more than $3.6 billion. By 1995, Bahrain had also privatized at least partially, its, aluminum industry, small enterprises from the food manufacturing industry. Industrial investment by the private sector in this small state was more than $4.4 Billion by the end of 1996. (Jiyad, A. M, 1998). The campaign to private in order to make the institutions more efficient and productive has led to inflow of foreign direct investment (FDI) in these countries. Oman, Dubai (UAE) and Bahrain etc have allowed their private investors to gain complete ownership of their investment and industry. (Jiyad, A. M, 1998). The past 3 decades have led to an unprecedented growth in the GCC countries. The cost oil per barrel has risen from $12 to $100 and beyond. The financial profits that have been gained from this boom as been used to modernize infrastructure, improve social indicators, develop infrastructures as well as maintain foreign currency reserves while keeping external debt at a low level. â€Å"Life expectancy in the GCC area increased by almost 10 years to 74 years during 1980–2000, and literacy rates increased by 20 percentage points to about 80 percent over the same period. Average per capita income in the GCC countries was estimated at about $12,000 in 2002, with their combined nominal GDP reaching close to $340 billion (more than half the GDP of all Middle Eastern countries†. (Fasano U and Iqbal Z, 2003). Globalization and Human development Globalization, through the process of privatization leading to increase in resource allotment and can lead to increased focus towards human development. Improvement and competition leads to increase in the standards in the health and education sector. Privatization in the education sector can lead to improvement it its standards and it can structurally transform itself to cater to the needs of the market. â€Å"In other words private involvement in education and health sectors could bring with it more investment, more competition, better service, and wider choices. Successful liberalization and privatization programs could also accelerate growth, boost domestic investment and attract foreign capital generate employment and increase (per capita) income† (Jiyad, A. M 1998). The performances of the GCC countries towards human development have been weak in the past few decades. Great progression was seen in the early 70s and 80s but investment towards human development seems to have become stagnant in the 90s. Case in point is Saudi Arabia which compared to the public spending of $81.4 billion in 1985, only spent $82.7 billion in 1995. This and other indicators like these demonstrate that investment in the future development of the people had been ignored in the decade of the 90s. † (Jiyad, A. M 1998). Another problem which still needs tending to is the increase in the population in most of the GC countries. The high growth rate along with increase of women in the work force due to opening up of the society in the GCC countries has produced another problem of unemployment. The GCC wok force is growing at a rate of 4% per year and if this keeps up, the unemployment rates will soon follow suite and create another burden on the society. The GCC countries have been trying to initiate and grow in the non oil industry sector to create jobs for its people and to be able to sustain their growth rates. †Government services in many GCC countries are provided free or at highly subsidized prices, particularly water and electricity, while non-oil taxation is low, consisting mainly of income tax on foreign corporations except in Oman, where local corporations are also taxed. Some of these countries have recorded overall fiscal deficits over the years, reflecting volatile global oil prices and relatively high levels of current expenditure† (Fasano U and Iqbal Z, 2003). This can be seen by the indicators in the following charts below. â€Å"All GCC countries share sound and well-supervised banking systems. Banks are well-capitalized and profitable. Their supervisory framework has been strengthened and is largely compliant with international standards and codes. Moreover, GCC countries have gradually taken a number of steps toward implementing a market-based monetary policy, though direct instruments (such as interest rate and credit ceilings) continue to play a role in a few of these countries.† (Fasano U and Iqbal Z, 2003). Deepening of the regional economic integration Even with their high visions and plans of development to create sustainable non oil based economic power houses, the GCC countries have fell short of their aims for the past decades. These goals can still be achieved. The key for realizing such gains is in the collective integration and regional advancement. These collaborations have to be inline with the WTO policies and regulations. Since the GCC countries already enjoy free trade agreements with each other, the next step would be in the form of creating custom union. This can be beneficial for the GCC countries involved in the union as well as during multilateral trade deals. Giving the world a single regional front can only be beneficial as this means that there will be unified tariffs across the countries. The negotiations with the WTO any aspects would be held through a collective front rather than of the members negotiating individually. (Yousif Khalifa Al-Yousif ) Other benefits that can be achieved by the GCC countries integrating themselves further include providing a unified local market to the world to deal with. This means that the smaller countries like Bahrain can gain access the behalf of large ones like Saudi Arabia into the western markets. Deepening ties will further lead to reduction in internal conflicts and maters of miniscule value. Since integration into a regional bloc like the GCC has already led to and will further lead to open access to each others markets therefore inter GCC trade will only allow the local industries to grow further and provide employment to local work force along with allow growth in the human development sector. Millennium goals indirectly leading to economic and developmental Stability The GCC countries are a bloc of wealthy countries on their way to regional integration and providing a unified and developed front to the goal. Therefore it is suitable for them to cater to and provide assistance to the less developed Arab countries in the region. The countries have set out goals for the future and are working towards them at a steady pace. Eradication of poverty: the spread of wealth even with the population of the GCC is unevenly distributed. The gulf countries are working hard to implement policies which would lead to ensuring that all the people are provided with food and shelter. This can be done by providing jobs. Broadening the industrial base is the priority. This will lead to creation of jobs for the people. In this way wealth can be spread and distributed evenly. Energy Accessibility and Efficiency â€Å"Despite the vast energy resources of the region, in 2003 only 78.6% of the Arab population had access to electricity, ranging from almost 100% in the GCC countries to under 8% in Low Developed Countries (LDC). The region’s overall energy efficiency (kilogram (kg) oil equivalent per $1,000 GDP (PPP)) has improved unevenly in the past decade. In 2002, the GCC countries reported the highest energy use (504 kg oil equivalent per $1,000 PPP), followed by those of the eastern (262 kg oil equivalent per $1,000 PPP) and the western (some 137 kg oil equivalent per $1,000 PPP). Data available data on energy use in the Arab LDCs are inadequate.† Regional Progress towards the Millennium Development Goals in the Arab Region (2006). Education: the literacy rate of the local population in some of the major GCC countries is quite low. Steps are being taken to ensure to ensure that that the new generation is provided with education to be able to work as a contributor for the development of the society and the country as a whole. Gender equality: it has been long an issue, that the Arab countries in general have a poor record for gender equality and women empowerment. The GCC countries have moved leaps and bounds from where they were a couple decades ago. Currently female integration is in every corner of the work place. Few of the major multinational companies are owned and run by business women in the gulf. Still female literacy rates are low and the gulf government’s aims for the near future are ensure that they become equal participants in the work force as they comprise around 50% of the total population. References and Bibliography Bà ©atrice Maalouf, (2006). The GCC: A Union to Be Reckoned With. Congress of the Czech Political Science Society in Olomouc [internet], Available from: [Accessed 4 April 2008]. Democratic governance Arabia (2008), United Nations Development Program. [Internet], Available from: [Accessed 4 April 2008]. Fasano U and Iqbal Z, (2003).GCC Countries: From Oil Dependence to Diversification. International Monetary Fund. [Internet], Available from: [Accessed 4 April 2008]. Figure 1, Fasano U and Iqbal Z, (2003).GCC Countries: From Oil Dependence to Diversification. International Monetary Fund. [Internet], Available from: [Accessed 4 April 2008]. Figure 2 Fasano U and Iqbal Z, (2003).GCC Countries: From Oil Dependence to Diversification. International Monetary Fund. [Internet], Available from: [Accessed 4 April 2008]. GIC Produces Comparative Data on GCC Economies Showing Solid Upturn in 1999 GDP. (2001),