2. 30 2.1. Variables, Indicators, and statistical shortcomings 32 Oil and the Saudi Economy 72 4.The Limits of Rentierism in Saudi Arabia ………………………………………….. 82 4.1. Obstructed Industrialization 82 4.2. Labor Market 85 4.3. Poverty and Inequality Fiscal Pressures and Solutions 92 5.3. The Death of Saudi Rentierism 2infrastructural projects with the goal of developing Dubai as an international trading center in order to diversify its sources of income. Nevertheless, al Maktoum’s thoughts regarding oil 3seem to be in the process of fulfillment for a number of other oil-reliant states that are fiscally suffering due to the unstable, and recently plummeting oil prices. Pygabara Legborsi, “The Adverse Impacts of Oil Pollution on the Environment and Wellbeing of a Local 1Indigenous Community: The Experience of the Ogoni People in Nigeria” United Nations, (2007): 1, accessed November 9, 2015. http://goo.gl/M8cvIL Brianna Brooke Seymour, The Death of Rentierism in The Kingdom of Saudi Arabia, Master's thesis, 2University of Utah, 2012 (Utah: Marriott Library, 2012), 2. Ibid.3 . Additionally, Bahrain, Oman, and other Gulf states 7are in the process of applying a value added tax (VAT) law by 2018. Last but not least, Saudi 8Arabia, a state deriving 90% of its revenues from oil, has already implemented tax reforms on non-nationals, reduced its subsidy on domestic fuel prices, and is in the process of creating a $2 trillion wealth sovereign fund in an attempt to move away from oil reliance. Although the 9economic/financial rationale behind such reforms is quite understandable as such states are attempting to endure the low oil prices, they are drastic nonetheless as they challenge the main underpinnings of this class of states, and more importantly the main tenets of rentierism. Ibid, 4.4 Gassan Al-Kibsi et al., “Saudi Arabia Beyond Oil: The Investment and Productivity Transformation,” 10 12 1.1. Research Question In addition to the “relatively radical” nature of the reforms applied by several rentier stats which gave rise to the notion of the “death of rentierism”, it is easily noticeable that each case had varying socio-economic experiences and responses to oil shocks. Such 13differences combined with the conceptual contradictions vis-ą-vis the reforms applied challenges the simplistic and over-generalizing nature of the classical RST. Considering the above, this research poses the question of “Is the rentier state theory still effective in analyzing oil reliant states?”. As such, this thesis will attempt to analyze and compare a Tim Niblock and Monica Malik, The Political Economy of Saudi Arabia (Abingdon, Oxon: Routledge, 2007), 1014. Ibid, 1511 “Given the current and long-term policies adopted by KSA, is it still appropriate to dub it as a rentier state?” Grupo de Economia Política, (2014): pg. 1, accessed March 23, 2016, http://goo.gl/qLWzft. Hazem Beblawi, “The Rentier State in the Arab World,” in The Rentier State, ed. Hazem Beblawi and 19Giacomo Luciani (Croom Helm, 1987), 50. Ibid.20 Ibid.21 Giacomo Luciani, “Allocation Vs. Production States: A Theoretical Framework,” in “distributes” the revenue through lavish spending on public services, patronage packages to certain groups, and high salaries for government employees. Finally, Beblawi adds that the 29externality of such rent revenue is of epitome importance as an internal source of rent cannot Ibid.24 “Measuring the Role of Tourism in OECD Economies,” The OECD Manual On Tourism Satellite Accounts 25and Employment, July 26, 2000, pg. 127, accessed January 2, 2000, doi:10.1787/9789264182318-en. Niblock and Malik, The Political Economy of Saudi Arabia, 15.26 Luciani, “Allocation vs. Production States: A Theoretical Framework”, 70. 47 The last effect relating to RST is the “modernization effect” which argues that economic development that is based on resource wealth alone does not bring about the necessary social and cultural changes that would lead to economic modernization. Although 48 mention the prestige it offers, the best and brightest aspire to hold such positions. The 72previous coupled by the high-consumption patterns evident in such societies and the capital intensity of its most important sector not only affects the state’s economy in terms of diversification, but also does little to create employment opportunities. For each unit of 73capital invested, the oil industry creates few jobs that require a certain set of skills, often not sufficiently offered by the local workforce. As for the remaining more “demeaning” job opportunities, they are left for expatriates as they are often associated with a stigma of “shamefulness” especially in Arab rentier states. 74 Niblock and Malik, The Political Economy of Saudi Arabia, 32.68 Charlotte M. Levins, “The Rentier State and the Survival of Arab Absolute Monarchies,” Rutgers Journal of Middle East Journal, 2013, pg. 304, 82accessed March 30, 2016, http://goo.gl/aM3tZo. Ibid, 301.83 Matthew Gray, “A Theory of 'Late Rentierism' in the Arab States of the Gulf,” Center for International and 84Regional Studies 67%3Libya91%16UAE65 Saudi Arabia90%17Gabon64%5Brunei 54%7Turkmenistan82%20Qatar53% 50%10Chad75%23Kazakhstan50%11Azerbaijan74%24Ecuador47%12Nigeria70%25 : 1997-2000 HDI - Overall Trend-line Judging by the results above, it is deductible that on average the selected population of cases was negatively affected in terms of unemployment and HDI due to the Asian Crisis. Moreover the figures for the standard deviation in addition to the graphical representations 2.2.3. Results Judging by the mentioned beforehand, one can easily deduce that oil price shocks CountryPopulationNigeria181,562,056Libya6,411,776Russia142,423,773UAE5,779,760Iran81,824,270Turkmenistan5,231,422Algeria39,542,166Congo Republic4,755,097Iraq37,056,169Oman3,286,936Venezuela29,275,460Kuwait2,788,534Saudi Arabia27,752,316Qatar2,194,817Angola19,625,353Gabon1,705,336Kazakhstan18,157,122Bahrain1,346,613Ecuador15,868,396Tr. and Tobago1,222,363Chad11,631,456Eq. Guinea740,743Azerbaijan9,780,780BruneiCountryUnemploymentCountryUnemploymentTurkmenistan60%Algeria10.3%Congo Republic53%Venezuela7.9%Libya30%Chad7%AngolaAzerbaijan6%Nigeria23.9%Tr. and Tobago5.9%Eq. Guinea22.3%Russia 5.58%Iraq16%Kazakhstan5.3%Iran16%Kuwait3.4% Table (18): Segmentation of Rentier Cases The first part of this chapter showed that rentier cases react differently in the event of an oil price shock. These preliminary tests showed that dealing with rentier cases similarly , (4) Qatar, (5) United Arab Emirates. , (9) Kazakhstan, (17) Trinidad & tobago, (18) Russia, (19) Nigeria. . The resulting 162two groups of rentier cases display huge differences in all aspects tested above. For instance, the high income oil states such as Kuwait, Guinia, Brunei, Qatar and UAE compared to states of the second group such as Nigeria, Saudi Arabia and Libya experience a slightly higher HDI rate, less unemployment, a lower population count and in turn a higher per-capita rent As seen by the previous chapter, countries like Kuwait and Brunei posses large presence in Arabia in order to protect its trade routes and colonial interests in India. Such presence took the form of a signed treaty with the rulers of the Gulf coast which granted Britain the right to intervene in the regional affairs of such states, which lasted until 1971. 186 Amidst such rising attention, several tribal clans started forming alliances, the most important of which was between a tribal chieftain named Muhammad Ibn Saud and a religious leader called Muhammad Ibn Abdul Wahab. This pact which took place in 1744 led to the establishment of several close ties between the Al-Saud and Al-Wahab families, committing the Saudis to adopting the Wahabi version of Islam for years to come. It is 187important to mention that Wahhabism follows the Hanbali school of Sunni Islam, calling for fundamentally returning to the simplest teachings of Quran and Hadith without extensive 1834 by his cousin Musher Ibn Abdelrahman who aspired to rule the Nejd region himself. 201Following his death, inter-family disputes took place between the newly appointed ruler; Khalid Ibn Saud and Faisal Ibn Turki, whom has succeeded eventually in overthrowing Khalid in 1843. This however did not mark the end of the internal Saudi disputes as the 202 Ibid.196 Ibid, 75. Understanding that their weak forces alone cannot compete against the Ottomans, in 1866 the Saudi family signed a “friendship” treaty with Britain in exchange for money and weapons which barely facilitated their control over Nejd. Eventually, the Rashid tribe, Abdul Aziz Al-Saud and the Great Game in Arabia, 1896-1946, 205.230 Bowen, The History of Saudi Arabia Saudi Arabia: Power, Legitimacy, and Survival, 26.245 Ibid, 12. Bowen, The History of Saudi Arabia Bowen, The History of Saudi Arabia British, due to geo-political reasons, he preferred to marginalize the British dominance in the region by turning to the Americans. Despite the fact that Britain provided much strength against the Ottomans, Ibn Saud feared from the declining power of the British, especially following WWI. Moreover, this decision of not joining states such as Kuwait and Iraq in signing oil concessions with Britain was mainly because the Americans agreed to pay in gold , 38.281 Ibid.282 industries where the economy holds a comparative and/or competitive advantage. Not only 306will this cover the losses of the state in the event of an oil price shock, but it would also insure a stable rate of growth, raise the national income, provide more employment opportunities and generate more investment opportunities. Furthermore, overtime such 312 Industrial Development in Saudi Arabia, 36.318 Ibid, 44.319 Rodriguez, “Dutch Disease in Saudi Arabia?”, 21.320 Brahmbhatt, Canuto and Vostroknutova, “Dealing with Dutch Disease”, 4. . Due to 327the country’s focus on the oil sector and its demand for a highly skilled labor force, many positions are filled by foreign workers. Moreover, due to the so called “rentier mentality”, relatively low paying job are deemed unworthy for the local Saudi labor force, thus they are also filled by foreigners. This poses as a problem for the economy because of the nature of 328such workers to remain in the country for a short period of time, not to mention transferring their earned income abroad to their respective countries. This leads to a considerable amount of funds not circulating in the Saudi economy. Additionally, the capital intensive nature of According to the government, the above spending and taxation reforms should contribute to the state’s budget by at least $100 billion by 2020. 386 In order to back such reforms, it was crucial for certain governmental restructuring to take place, not to mention the need for a solid development plan to withstand such low oil prices. This is exactly what the deputy crown prince formulated on April 2016 dubbing it the “Saudi Arabian Vision for 2030”. Being of a relatively young age, deputy crown prince Beblawi, Hazem. "The Rentier State in the Arab World." In The Rentier State, edited by Hazem Beblawi and Giacomo Luciani. Croom Helm, 1987. Bentley, Elliot, Pat Minczeski, and Jovi Juan. "Which Oil Producers Are Breaking Even?" The Wall Street Journal. January 18, 2016. Accessed September 9, 2016. http://goo.gl/ 7cxh3S. Falnagan, Ben. 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