The private sector in all GCC states has for many years been highly state-dependent, with business activity closely linked to direct and indirect distribution of government wealth. State contracts have been one of the most substantial sources of enrichment for business actors, which have also relied on government bailouts at times of financial difficulty. At the same time, each state’s distribution policies towards the wider population have maintained high levels of consumption, and this has been to the great benefit of local businesses – not least through the ownership of companies awarded public contracts. Indeed, the dependence of the local private sector on the state has increased since the end of the 2000s, as shown by the overall pattern of growth in the public sector’s share in total investment among the Gulf monarchies. For the GCC overall, the public sector accounted for an average of 39.7 per cent of gross fixed capital formation in 2009–14, compared with 32.6 per cent in 2003–08. The rate of increase was particularly notable in Bahrain (from 19.6 per cent in 2003–08 to 30.0 per cent in 2009–14), Kuwait (from 22.3 per cent to 34.1 per cent) and Saudi Arabia (from 35.4 per cent to 47.4 per cent), while the largest share (57.3 per cent in the latter period, up from 49.5 per cent) was in Oman. The exception to the trend was the UAE, where the share declined from 35.5 per cent in 2003–08 to 31.5 per cent in 2009–14.8
Despite some shift in the composition of business elites and the emergence of new business actors, the oil-based power balance remains intact. Naturally, the protection and expansion of the associated privileges has been of paramount interest to the GCC business elites, and has largely defined its engagement in political discourse. Even in the rare instances of ‘new money’ disrupting the monopolies of the old business elite families – examples being Esam Jinahi in Bahrain, or Mahmoud Haidar in Kuwait, who have been considered as being among the GCC’s most influential economic figures since the early 2000s – it is only with the patronage of, or in partnership with, royals who are themselves involved in business that these could rise to become prominent economic actors. Traditional merchant families have been successful in maintaining very high barriers of entry into the business community, thereby preventing newcomers from threatening their monopolies and resisting the nationalization of the workforce. Thus, established businesses contribute relatively little to support small and medium-sized enterprises and new private-sector interests in general.
The capacity of the business sector to engage in politics in the Gulf monarchies depends on historical relations between ruler and merchant class; on the presence of institutions through which business interests can formally participate (indeed the parliament in Kuwait has provided an important platform for the merchants’ political engagement since the independence); and on the extent to which the political field is monopolized by the ruling family. In Bahrain and Saudi Arabia formal political engagement by business has been limited, constrained by the dominance of royal family members in top government positions. Thus, merchants’ interests there have been pursued mainly through lobbying bodies such as chambers of commerce and industry, and through informal connections with ruling family members. Business interests in Qatar and the UAE are to a large extent protected by the close interconnection of often indistinguishable economic and political elites. The situation in Oman and Kuwait, however, is appreciably different. Business actors in both states have been directly involved in formal politics, occupying key government positions as well as – in the case of Kuwait – engaging in parliamentary politics.
The engagement of Gulf business interests in politics has not necessarily been uncontentious. Indeed, business actors have at times made use of both formal and informal channels to challenge government policies that potentially compromise their critical economic interests. In Bahrain in 2008–09, for example, business owners openly lobbied the prime minister in protest against efforts by the Economic Development Board – a body headed by the crown prince – to introduce labour market reforms, and the measures were in the end watered down. In Kuwait, notably, some of the country’s most prominent business figures allied themselves with the opposition movement in 2011–12 against alleged corruption at government level. In Qatar there has been strong opposition from much of the private sector, including from business royals, to the cautious reform of the sponsorship system that is scheduled to enter effect in December 2016. There has been a similar pattern elsewhere in the Gulf; even in the UAE, where a model of free zones has been developed, the law outside the free zones requires that a company must be majority-owned by nationals.
Across the Gulf monarchies, however, the business community’s critical reliance on state largesse has made it wary of political confrontation, as the stability of the incumbent regimes ensures the continued flow of rents to the private sector. Therefore, the trend across the Gulf following the Arab uprisings has been towards a closer alliance between business and ruling powers, with merchants representing the regimes’ strongest supporters. In Bahrain the vast majority of the private sector openly supported the hardline prime minister against opposition protests in 2011–12 – a notable exception being Faisal Jawad, chief executive of the long-established Jawad Business Group (JBG), whose perceived sympathy with some protesters made his businesses targets for boycotts and vandalism.9 In Oman perceived conflicts of interests and alleged corruption resulting from direct involvement of business leaders in government were among protesters’ main grievances in 2011. While a cabinet reshuffle was subsequently implemented, this did not profoundly restrict the merchants’ access to political decision-making, and popular resentment of business elites persists. In Kuwait the opposition-dominated parliament in the second half of the 2000s had attempted to tackle the interests of the private-sector elite head-on. For instance, it opposed government measures intended to bail out businesses affected by the 2008 financial crisis, pushing instead for the government to drop consumers’ debts; it also blocked several megaprojects, such as the planned new Al-Zour refinery and a joint Dow Chemical deal at the end of 2008, and questioned the legality of the Kuwait Chamber of Commerce and Industry. This prompted members of the business community generally – even those figures who had previously supported the opposition movement – to realign themselves with the ruling powers in the aftermath of the Arab uprisings. The merchants were confirmed as the main supporting pillar of the regime after legislative elections in 2013, and for this they were rewarded economically. Kuwait’s new parliament – which, after a large-scale boycott of the polls, lacked any prominent opposition representation – swiftly approved a US $130 billion five-year development plan for the period 2015–20; this had a particular focus on the implementation of multiple infrastructure projects and enhanced public-private partnerships, thereby opening large-scale opportunities for the local business sector. Many new schemes were launched, and a number of suspended projects, including the Al-Zour refinery, were revived.
At present, the governments of Qatar and the UAE are still able to continue providing roughly the same level of welfare to their people, but those countries with a larger population (Saudi Arabia) or fewer resources (Oman and Bahrain) are faced with a much more urgent dilemma of distribution.
Thus, their primary interest in retaining privileged benefits from the rentier state has pushed the region’s business elites to strengthen their support for the incumbent regimes across the Gulf, and to act as committed proponents of the political status quo that guarantees and secures their economic benefits. Such opposition to reform, combined with the business community’s ability to influence the political discourse in favour of its own interests, underlies the growing antagonism observed among the wider population towards these elites across the region. The wide socio-economic disparities between the established business community – together with the ruling powers that this community supports – and the less privileged and more numerous sections of each Gulf monarchy’s population have been thrown into sharp relief, with increasing resentment on the part of the latter that they are getting only the crumbs of a cake that business elites and ruling powers are dividing between themselves. The situation is aggravated by the distinct structural autonomy of the private sector, which is not required to contribute to the benefit of the population as a whole by paying taxes or by providing sufficient employment. In the context of financial pressure arising from low world oil prices, the competition for state resources has intensified. At present, the governments of Qatar and the UAE are still able to continue providing roughly the same level of welfare to their people, but those countries with a larger population (Saudi Arabia) or fewer resources (Oman and Bahrain) are faced with a much more urgent dilemma of distribution.
8 United Nations Conference on Trade and Development (2015), World Investment Report 2015, http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf, p. 55, Table II.5.
9 JBG was established in the 1950s. On a number of occasions from 2011 JBG premises were reportedly vandalized by pro-regime activists (see for example Abu-Nasr, D. (2012), ‘Torched Bank Warns Formula One Racing into Bahrain Violence’, Bloomberg, 19 April 2012, http://www.bloomberg.com/news/articles/2012-04-18/torched-bank-forewarns-formula-one-racing-into-bahrain-violence), and state-led campaigns were organized to encourage boycotts of JBG products.