The New York Times editorial board recently published an editorial bemoaning corporations’ continued interest in investing in Saudi Arabia. The article highlighted a few reasons for Saudi Arabia’s attractiveness to foreign capital, but provided little context to those reasons, which may be why the board remains puzzled. Here is a little more on what makes Saudi Arabia eye-catching to foreign investors.
On June 27 and 28, a large Gulf delegation traveled to Berlin to participate in the first Gulf-German forum on security and cooperation, organized by the German Federal Academy for Security Policy and the German-Arab Friendship Association. Discussions at the conference, attended by Prince Turki Al Faisal, Chairman of the King Faisal Center for Research and Islamic Studies, touched upon the need to restart negotiations over a GCC-EU free trade agreement (FTA), after previous negotiations collapsed in 2009. Coincidentally, the EU has just concluded an FTA with several South American states, so there is now space for the GCC to conclude a similar deal.
Late June saw the leading scientific journal, Science, publish an article ranking a sample of 40 countries in civic honesty, where people voluntarily refrain from opportunistic behavior. Worryingly for Arab and Islamic countries, they dominated the lowest positions in the rankings, while the highest positions were reserved for the countries with the highest living standards. While it is difficult to demonstrate a definitive causal relationship between civic honesty and economic success, the data should make policymakers think hard about the need to make people trust each other more as part of their economic strategies.
The Gulf Cooperation Council (GCC) countries currently have a single market with a common external tariff of five percent. The introduction of a value-added tax (VAT) in Bahrain, Saudi Arabia, and the UAE under the GCC framework significantly expands the fiscal flexibility enjoyed by the governments. As a result, the Gulf countries should work toward eliminating customs taxes, switching exclusively to VAT. The primary benefit will be in opening markets for the Gulf countries’ new non-oil exports as they implement their economic visions.
In order to boost entrepreneurship, Saudi Arabia should consider following a 1950s plan used to improve the Italian economy, which was done in partnership with the US, a recent paper by Michela Giorcelli of the University of California suggested.
Ensuring a reliable flow of oil for its economy, and for those of its economic partners, such as China and Japan, became a central tenet of US foreign policy, and a key reason for its heavy military involvement in the Middle East.