10 May 2006

Halt the hype

Interesting to read an article which quotes a representative of the World Bank as he advises GCC countries to stop building big projects that are borderline sustainable, and instead look at investing oil money into creating industrial projects that provide opportunities for longterm growth and returns.

“There is enough construction," Hossein Razavi, director of the World Bank's private sector finance and infrastructure department in the Middle East and North Africa, told Reuters in an interview. "(Gulf states should) develop export-oriented industries because that is the source of long-term sustainable growth for the region and I think that is the one area that should have the highest priority.”

He goes on to add that the building of roads, tourist resorts and similar projects were only feeding domestic demand and driving up inflation, and concludes by calling for more fiscal responsibility by the GCC governments.

Fellow blogger Emirati has been a strong advocate of this thinking for quite some time. In his Monday October 17th 2005 post titled: EIS1: Utilization of Natural Resources, he discusses some options that are available to the UAE through use of petroleum for making plastics and silica for glass, ceramics and semi-conductors. In his Monday 13th October 2005 post titled: Going International, he states that: “Industrialization would have great benefits to the UAE. It would once more help the internal industrial base, help secure additional exports, and save more money from going outside the country. It would help with internal maintenance, help develop internal technical capabilities and lessen dependence on other countries. A first world and developed country should not depend on services and the sale of raw materials only for its income and depend on the Importation of everything. The best time for the Industrialization here is sooner, not later.”

It’s good logic. For a start, it would see the UAE compete with other parts of the world in the exporting of manufactured goods. It provides employment in a sector that the UAE has not openly embraced. It gives growth to the UAE which in time will see diminishing returns as its natural petroleum resources start to dwindle.

Most importantly, as Emirati lucidly points out, if the UAE wants to be considered as a first world and developed country, then this is an area into which they must expand and develop.

What are the criteria for being a First World Country? On the surface, it appears that the requirements are pretty simple. According to the One World – Nations Online website:

The term "First World" refers to so called developed, capitalist, industrial countries, roughly, a bloc of countries aligned with the United States after World War II, with more or less common political and economic interests: North America, Western Europe, Japan and Australia.

In terms of industrialisation, I think that there’s a long way to go before the UAE will be seen on that list of countries, especially taking into consideration the other listed criteria such as Human Development and Freedom of the Press. As well, the recent DP World saga caused damage to the “common political and economic interests” which still has some healing to do.

To be taken seriously, the UAE needs to be coming up with more credible, realistic, sustainable, financial and believeable projects than those with names like Beautyland, that in the world outside the UAE and in the minds of some UAE residents, only reinforce the opinion that this country is not for real.

A serious commitment to industrialisation and the formulation of a 15-20+ year schedule to develop the UAE industrial plan would be a good start. After all, this is the model that India has been following for many years (planned in the early 90s), and is about to come to good fruition for a country which put aside political differences to adhere to a series of 5 year plans to develop their industrial growth. You'll notice on their 1991 Statement of Industrial Policy, that development of Hotels and Tourism-related industries is in last place at #34 on the list for industies granted automatic approval of foreign technology agreements and for 51% foreign equity approvals. Obviously, tourism is not a high priority for development in India!

As always, the key for the UAE is to define the goal and by when: with commitment, planning and continual updating of the plans to change with the economic and social environments. Plan according to the needs within shorter 5 year periods, and take into consideration the return on investment (ROI) and opportunities for growth.

It's a bit like running a business, really!


MamaDuck said...

Thanks for the World Bank story, which I had missed. My God, woman, do you ever sleep? I started a comment, which turned into one of my big lectures - you know! So I've stuck it on the UAE Community Blog (my first entry!)and linked to yours. xx Mama D.

archer14 said...

Fantastic post...
For industrialisation to commence here, proper labour laws must prevail. The ILO and its laws must be abided by and the concept of 'free trade' must also be developed.
Most importantly, as Emirati lucidly points out, if the UAE wants to be considered as a first world and developed country, then this is an area into which they must expand and develop.

The UAE is not looking forward to being a first world country. For if that was the case, some thought would have been given at easing labour laws to allow investors to start small and medium scale businesses. With the present charges, only a fool could start a company and hope to survive.

Suffice to say, an economy can only run without hitches if it's a balanced economy. Tourism cannot be sustained in a country of such proportions without other means of propelling the economy.

But what is being forgotten the most is that Western perceptions of the ME will never change, no matter how many Burj's and malls are built. This continues to be a hot spot because of its proximity to conflicting nations and the nuclear powered Iran which mimics North Koreas policies(if there are any).

Shaykhspeara Sha'ira said...

archer indeed...political stability even if in surrounding nations, is a key to enabling investment on a longterm basis.

It's sad to watch the UAE with all its potential not utilize it to it's fullest.

However the newer generation with people like emirati will most likely change the future in the UAE. Question is though if it will be "too late" by the time they get into some sort of position of power or influence.