Industrial Policies in the Gulf and the Middle East
As they consider the inevitable transition of a
post-oil world, the coming waves of disruptive technologies, and the prospect
of losing out in an increasingly competitive environment, the Gulf countries
have adopted blueprints for economic transformation more ambitious than
anything attempted in the past. The
“vision” statements of the GCC countries, in particular, envisage the
development of industries that would propel them closer to ...
Abstract
As they consider the inevitable transition of a
post-oil world, the coming waves of disruptive technologies, and the prospect
of losing out in an increasingly competitive environment, the Gulf countries
have adopted blueprints for economic transformation more ambitious than
anything attempted in the past. The
“vision” statements of the GCC countries, in particular, envisage the
development of industries that would propel them closer to the frontier of
technological innovation. It is not
evident, however, that these amount to coherent and viable industrial strategies. The plans have not adequately addressed the
market failures that any meaningful industrial policy needs to overcome. Nor have they established the robust
institutional mechanisms and procedures necessary for realization of their
industrial aspirations.Arriving at a better understanding of the industrial
policies of the Gulf countries is the primary objective of this workshop. While studies of industry in these countries
abound, many aspects of their industrial policies/strategies have received
little scholarly attention. There are few
in-depth studies of even such basic questions as the process in which those
policies were formulated and adopted. The workshop will undertake an intensive
examination of central issues in industrial policy – the rationales behind the
choices that have been made, their prerequisites, their limitations, their
potentials, and the prospects for alternative pathways for industry in the
region. In examining this
under-researched area, we aim to make a substantial contribution to Gulf
political economy studies.
Description and Rationale
Contrary to what is often supposed, even in the
academic literature, the Gulf countries have made major strides in
industrialization. That most of the
industries they have established are based on or are tied to oil and gas does
not negate the achievement. There has
also been progress in diversification even if the mainstay of diversification
has been in hydrocarbon industries, the product of extensive upstream and
downstream investments. The industries,
all capital-intensive and energy-intensive and many supported by favorably
priced feedstock, include a variety of petrochemicals as well as steel,
aluminum, building materials, and electrical machinery. In the process, world-class stalwarts such as
SABIC (the Saudi Basic Industries Corporation) and ALBA (Aluminum Bahrain) have
emerged. Some countries, notably Saudi
Arabia and the United Arab Emirates, are also moving aggressively into
renewable energy, especially solar. Yet
other areas such as maritime logistics are expanding capacity and operations
and providing a spur to manufacturing. All in all, the industrial base of these
countries has widened and their industrial capabilities have grown.
Such progress notwithstanding, the Gulf countries are
today more conscious than ever before of their limitations in the world of
industry. With the possible exception of
the UAE, none of the Gulf countries can make credible claims to having made
substantial headway in diversifying merchandise exports: the export of
non-hydrocarbon manufactured products is lacking in both depth and scale. And although there has been a growing private
sector role in industry, even petrochemicals, state-owned enterprises still
rule the roost. The professed intention
of making private industry the engine of growth and development – a common
thread in all the “vision” manifestoes that have proliferated in the Gulf – is
nowhere close to realization. Few
private entities, most of which are small and medium enterprises, are
beneficiaries of financial or technical assistance from government, and few are
generators of employment or incubators of skills. The region’s industrial policies are statist
through and through: the suggestion that industrial policy be used as a process
of discovery -- a “dialogue” with the private sector devoted to eliciting
information in order to identify and remove binding constraints to development
– finds little, if any, correspondence in reality. Moreover, in general, productivity has not seen
appreciable increases and entrepreneurship remains weak, while efforts to
stimulate innovation through initiatives such as industrial clusters have not
yielded much success. The GCC countries
are low in the ranks of UNIDO’s Competitive Industrial Performance Index. Whatever its successes, the industrial
strategy of every country in the Gulf country continues for the most part to be
tethered to the rentierism of its national economy.
Hence, it is hardly surprising that there is something
close to a universal consensus among policy-makers throughout the region that
their industrial strategies are unsustainable. Today, these countries find themselves in a liminal juncture in the
world economy – a world with economies still dependent on fossil fuel and at
the same, slowly but surely, transitioning to alternative sources of
energy. The rethinking of industrial
policy has intensified thanks to the frequent revenue declines engendered by
gyrations in world prices of crude and the diminished wherewithal to maintain
the government largesse that has been an essential ingredient of the “social
contract” that has prevailed for decades.
The advantages once conferred by low-cost energy and low-cost labor have
waned. The felt need for a new set of
policies is also galvanized by the lures of “the new industrial revolution” –
NIE or I4.0 – which promises to usher in a wave of new technologies and to
upend many existing ones. Hence, the
Gulf countries are eyeing developments in such areas as artificial intelligence
(AI), advanced robotics, the Internet of Things (IoT), cloud computing, big
data, digital fabrication, additive manufacturing, augmented reality, 3D
printing, and nanotechnology. These
technologies and the global value chains that help to produce and distribute
them have far-reaching implications in realms ranging from energy and
investment to national competitiveness and social stability.
Concomitantly, the world has seen a sea-change
in thinking about industrial policy.
Once banished by the Washington Consensus and its singular preoccupation
with liberalization, deregulation, stabilization, and privatization, industrial
policy has undergone a resurgence since the turn of the century. It has shed its erstwhile emphasis on
“picking winners” as well as import substitution and economic protection. Instead, it gives pride of place to
innovation in production, development of entrepreneurship, human capital
development, foreign direct investment (FDI), and multinational enterprise
involvement. The scope has widened to
include a broad range of measures designed to support entrepreneurship and
competitiveness. Industrial policy is no
longer regarded as a fool’s errand. Even
development banks and development funds, once castigated as purveyors of
patronage, cronyism, and rent-seeking, are back in fashion.