Comparison and Contrasting of Two MENA Countries

Introduction

Nobody would deny the fact that the process of globalization intensifies on a day-to-day basis. Therefore, the national economy of any country will become a comprising part of global macroeconomics. As globalization presupposes the participation of different countries all over the world, it is becoming increasingly apparent that the Middle East will be included, as well. This part of the world has already made a step towards globalization, which resulted in the creation of MENA. Still, there has been a little agreement on the choice of the MENA country, which is likely to become the leading representative. Regarding the terms of globalization, it is worth saying that FDI is a perfect metric for the country’s measurement, which is likely to address contemporary trends of global macroeconomics. In such a way, two MENA countries should be compared and contrasted. The following study has chosen Dubai and Saudi Arabia, that is why it is necessary to outline that this study lingers upon the comparison and contrasting of Dubai’s and Saudi Arabia’s economies from the perspective of FDI capacity.

Literature Review

Dubai

As the preliminary literature review suggests, the primary peculiarity of Dubai economy is its free economic and industrial zone. This phenomenon is based on the theory that business succeeds with minimal government interference. Therefore, the government provides national economy and foreign partners with the zone of free economic relationship (Oxford Business Group 2013, p. 145). Nowadays, this zone has become heavily industry driven. As a consequence, it is a perfect opportunity for the foreign capitals, as long as they are not particularly limited to certain governmental restrictions on foreign investments and capitals. The potential growth for foreign partners is quite evident, regarding such extents of freedom. Furthermore, much of the current literature on Dubai economy pays particular attention to the fact that Dubai obtains well developed system of logistics, which includes meaningful air and ship cargo services (Mangan, Lalwani & Butcher 2008). Eventually, the foreign brands and corporations are proactively advertised via digital media platforms, so that it can be admitted that foreign investors are guaranteed to make a successful start of their marketing strategy in Dubai.

Besides that, recent literature admits that oil remains one of the most exported items in Dubai. In particular, oil provides the Emirates with 70-80% of its fiscal revenues and comprises 30% of all export earnings (USA International Business Publications 2002, p. 82). Despite of the fact that many experts express the opinion that Dubai heavily depends on oil, it is worth saying that it is the first state in the Gulf, which is ready for the post-oil era, as long as nearly 95% of its GDP is comprised by non-oil sector (AlSadik & Elbadawi 2012, p. 89). That is why, Dubai oil is the cheapest one in the world. As the literature review of Dubai economy has been issued, it is necessary to proceed on the description of the related literature on Saudi Arabia.

Saudi Arabia

In regard to the economy of Saudi Arabia, it is to be admitted that it is the leader in exports and imports among the countries of MENA. It can be explained by the fact that its economic free zone tends to develop trading freedoms with the foreign partners. As a result, however, the country does not address the basic principles of globalization tendency (Ramady 2010, p. 260). In other words, Saudi Arabia tries to focus on itself as an economic centre within the Gulf. Needless to say, such a strategy provides profitable export and import only because of free trade. What is more, Saudi Arabia nationalizes the mobilization of its resources on the large scale (Al Rajhi, Al Salamah & Wilson 2004). There is no doubt that the government is trying to underpin its attempts to provide a so-called self-sufficiency of Saudi Arabia. This strategy keeps working, especially in terms of cheap oil-fields, which are suggested for the foreign investments. Concerning oil industry in Saudi Arabia, it is essential to note a paradox role of the United States, which occurred to become the country’s partner. This issue will be tackled from the historic perspective in the following section. To return to the subject, it should be mentioned that the U.S. involvement made an obvious impact on the pricing strategy of oil fields in Saudi Arabia (Ham 2004). Eventually, the economy of Saudi Arabia is in a dubious situation. On the one hand, it tries to increase its value via free trading zone. On the other hand, it trades with nearly random price ratios, especially for oil, so that it does not coincide with the initial economic strategy of the kingdom. All in all, these are the main points regarding the literature review on economy of Saudi Arabia.

Country Study

Dubai

As it has been already described, Dubai is the emirate with a free economy zone, cheap oil, and modern corporate advertising basis so that it is eligible for the foreign investments and capitals. Speaking about the economy of Dubai in general, it is to be said that it combines monarchy principles and modern approaches together. As a result, the economy of Dubai refers to the principle “everyone has a share”, as long as the government controls resources but does not restrict the owners from a reasonable use. Besides traditional approaches in the economy, Dubai is thriving in the industry of architecture (Simeon 2013).

In consequence, Dubai obtains quite unusual political system, which consists of a traditional monarchy and capitalistic ideas. To be more exact, capitalism is commonly regarded as a liberal economic approach, while monarchy is a completely different political system. Although, it is becoming apparent that monarchy in Dubai dates back to British governance; nowadays, Dubai monarchy is particularly focused on the globalization tendencies (Henry & Springborg 2010). That is why, such new industries, as architecture, emerge. It should be noted that Dubai’s government clearly understands that so that Dubai does not make rash decisions regarding national economy and international affairs (Jones, 2007).

As the historic perspective has been mentioned, it is necessary to give it an account in order to clarify its involvement in political economy of Dubai. In fact, monarchy is a traditional political system of Dubai, as long as the most famous ruler of the country was Al-Maktoum family (Carter & Dunston 2007). Regarding the recent history, the exploration of oil in 1969 (right after the Great Britain left the peninsula) made the last turn towards formation of a “corporate state” of Dubai. These are the main points regarding the study of Dubai. Hence, the study needs to describe the same points with regards to Saudi Arabia.

Saudi Arabia

Speaking about the economy of Saudi Arabia, it is essential to outline three main components: free trading zone, active product exchange, and low-price oil fields. Free trading zone is an analogue to free economic zones in the other MENA countries. It is quite an obvious fact that active product exchange is provided via opportunities, which free trading zone suggests (Malik & Niblock 2007). As for oil fields, they are the primary reason of the partnership with the United States. It has various implications, which are worth description, as well. Hence, it is important to issue the political perspective initially.

The politics of Saudi Arabia is associated with a term of “Arab Paradox”, which means that a country, which belongs to the Arab world establishes the partnership with pro-liberal Western countries. Such evidence can be traced in the international affairs of Saudi Arabia, which made a wide range of agreements with the United States. At the same time, the Arab world accepted that in distinctly negative way, so that Saudi Arabia had to reduce the extents of its cooperation with the U.S. (Abukhalil 2004). Actually, “Arab Paradox” is claimed to be the cause of Arab Spring. What is more, “Arab Paradox” is a controversial international phenomenon because of strict and conservative political and economic principles of Saudi Arabia, which is known to be one of the most Islamic countries among the other MENA members. It can be explained by the fact that Islamic and imperialistic system was the ruling one for quite a long period of the kingdom’s history (Wynbrandt 2010). Therefore, it has been reflected on the modern political economy of Saudi Arabia. Hence, the study moves on to the next section.           

Discussion and Analysis

Similarities

Speaking about the economy similarities between Dubai and Saudi Arabia, it is necessary to admit that the most distinct similarity is a strong dependence on oil. Oil and gas have been explored in Dubai in 1959, so that this year is associated with the start of the economy’s growth. It is becoming increasingly apparent, however, that GPD from oil is getting lower every year (Carter & Dunston 2006). In such a way, one may argue that Dubai is not oil-dependent any longer. It is certainly true to a particular extent, but it is essential to note that Dubai does not refuse to sell oil at low prices. Such a pricing strategy is underpinned by the need to attract foreign investments in the other segments of Dubai’s economy, which offers beneficial partnership in terms of free economy zone. The same pattern of international economic relationship can be traced in Saudi Arabia.

In a like manner, Saudi Arabia provides western countries with cheap prices for the oil fields. Likewise Dubai, Saudi Arabia does not treat oil as the item of the highest GPD and exports. The resource use is controlled by the government, but it does make any considerable obstacles for the foreign capitals, as long as oil fields are rather cheap. There are two basic reasons for such a pricing strategy of Saudi Arabia. First of all, in a similar way to Dubai, Saudi Arabia attracts foreign investors in other industries. Second, Saudi Arabia, as the majority of MENA countries, possesses a meaningful amount of oil, so that it can make a powerful economic tool for the attraction of foreign capitals (Cordesman 2003). As a consequence, the foreign capitals get involved in other industries of the country’s economy, owing to the fact that free zones offer beneficial start-ups and trading exchanges. It is a comprising element of Dubai’s and Saudi Arabia’s economies that is why economic free zones are worth comparing, as well.

As for Dubai, it regards economic free zone as a field for potential foreign investments, so that it entitles this zone as a possibility of 100% foreign enterprise ownership (OECD 2012). Surprisingly, such freedom obliges foreign partners to become loyal taxpayers (after entering the national market of Dubai) and reliable suppliers. Namely, foreign ownership does not influence the economy negatively, as long as the government itself supports foreign capitals. These capitals are usually invested in the development of other segments of the national economy or infrastructure. Except the business opportunities, Dubai’s free economic zone offers a developed system of logistics. As it has been mentioned before, Dubai develops a meaningful network of supply chains, so that air and ship cargo services are one of the most thriving industries. In the similar way, economic free zone and logistics are the key tools for attraction of the foreign investments in Saudi Arabia. That is why, it is necessary to discuss them.

In a like manner, Saudi Arabia developed its own economic free zone. The government offers profitable trade exchanges for the foreign companies, so that the economic free zone has become a free trading zone. As long as Dubai developed a sophisticated network of logistics, Saudi Arabia followed this approach by the improvement of the logistics with effective railway roads, which are interconnected with the most important trading points within the Gulf (Brunn 2011). Saudi Arabia managed to develop its own air and ship cargo service industry. Regarding the political orientation of Saudi Arabia, the free zone is particularly oriented on the U.S. and other pro-liberal western countries. In such a way, the tendency of globalization process can be traced in Saudi Arabia, as well as in Dubai. These tendencies should be discussed, as well.

With regard to Dubai, it should be admitted that it considers the globalization process as a tool for its economy’s development. As it has been mentioned before, Dubai developed a free economy zone, in order to attract foreign investors, even though they can obtain 100% of ownership. Dubai does not consider a socio-cultural perspective of the globalization, while it utilizes economic approaches proactively. As soon as Dubai has obtained its economic power, globalization is no longer regarded as an attempt to colonize the entire Gulf (Elsheshtawy 2010). Globalization is an oversimplification of relationships between Arab and Western worlds, as long as economic concerns prevent the parties from an open confrontation in terms of geopolitics. Dubai does not participate in this process in the full understanding of globalization, but it is definitely supporting it because it coincides with its views on the macroeconomics. By the same token, Saudi Arabia constantly seeks the partnership with the United States and the other Western countries. Thus, this point should be given an account, as well.

In the similar manner, Saudi Arabia regards the process of globalization as an opportunity to boost its economy. As a consequence, it established partnership with the U.S. and other Western countries in terms of economic cooperation. At the same time, Saudi Arabia remains one of the most pro-Muslim countries with conservative customs and monarchy. As a result, Saudi Arabia, as well as Dubai and Kuwait obtained 26,7% of foreign investments in 2004 (United Nations 2006). Saudi Arabia considers the process of globalization as a way to offer its oil fields for the world macroeconomics. Namely, Saudi Arabia realizes a need for cooperation with the rest of the world, but it keeps emphasizing on its unique cultural and social identity, which underpins its role in the world macroeconomics. In such a way, the U.S. had to attempt to reanimate the partnership with Saudi Arabia, after the invasion in Iraq (Standlea 2006). All in all, it was the main point regarding the similarities in economy between Dubai and Saudi Arabia.                                  

Differences

Speaking about the differences in economies of Dubai and Saudi Arabia, it is to be said that the oil industry is considered as the basis for the future development of the country. Dubai realizes that oil cannot be a source of fiscal revenues on a regular basis, so that the economy requires a constant development. Therefore, Dubai has already started the preparation for post-oil era. Nowadays, oil is one of the cheapest items of Dubai’s export and obtains less GPD than in the end of the 80’s and the beginning of the 90’s. That is why Dubai has opened an inflow of foreign investments, in order to create a world recognizable brand, which will obtain such segments as services, tourism, and heavy industry (Bazoobandi 2013). The resources of oil are quite limited in Dubai nowadays, so that this emirate is no stranger to the development of other economy segments, while Saudi Arabia keeps emphasizing on its cheap oil fields and trading opportunities.

On the contrary, Saudi Arabia possesses a sufficient resource of oil, so that it can offer it at random price ratio during several following decades. Oil will attract foreign investors in the free trading zone, so that this pattern is quite applicable to the current situation of the national economy. In fact, the economy demands rotation on a regular basis, as long as it will not address the trends of the contemporary macroeconomics (Al-Riyami 2007, p. 17). Actually, oil pricing has already suffered from minor fluctuations, so that export opportunities may lose its value, as long as they started implying considerable instability.

Speaking about the implications of free economy zone in Dubai, it is to be admitted that the government considers it to be the place for the development of potential business opportunities. This approach can be referred to the planning of the post-oil era because the free economy zone includes a wide range of industries, which Dubai expects to create and develop. Such approaches address the contemporary trends in global macroeconomics, so that Dubai will be definitely in the number of countries with proactively developing economy, even though it accepts foreign ownership as a necessary phenomenon (Davidson 2011). The objective of free economy zone is to support self-contained areas of the emirate with a world-class infrastructure, which ensures a profitable export (Paul 2008, p. 484). In such a way, Dubai creates opportunities for its future economy and foreign investor’s fiscal revenues. As for Saudi Arabia, however, it does not regard its free zone as the same opportunity. Hence, it is pivotal to issue this point.

In contrast, Saudi Arabia considers its free trading zone as an obligation for conveying its self-sufficiency. Namely, free trading zone is a supportive tool of the entire economy of the kingdom. To be more exact, it provides Saudi Arabia with a meaningful export and import exchanges, especially oil, which is the most prominent item of export (Tiefenbrun 2012). In such a way, products are imported and exported because of offers of cheap oil fields. Thus, free trade zone is not a powerful centre of international economy. As soon as Saudi Arabia runs out of its oil, free trade zone will no longer be profitable. The government keeps emphasizing on the need to render the national economy’s sufficiency, while there is an evident necessity to plan a similar post-oil era because the current economy system of Saudi Arabia will not correspond the future trends of global macroeconomics.