Chapter

Comment

Editor(s):
Saíd El-Naggar
Published Date:
June 1989
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Author(s)
Abdlatif Y. Al-Hamad

I wish, first of all, to commend this excellent paper which dealt with the subject matter in an orderly and logical manner. It reviewed the role of joint private ventures in the economic integration of the GCC states, the composition of the ventures, and their distribution among the member countries. It has contributed to clarifying the overall picture.

I shall attempt in this comment to add some ideas that were omitted by the author, either because of his concern for brevity or for other considerations. It should be emphasized that the Gulf Cooperation Council is by its very nature a cooperative activity. Joint ventures are not limited solely to commercial ventures, as each activity in a cooperative framework can be considered a joint venture. In considering the enhancement of joint enterprises in the region, it should be borne in mind that they are not designed to achieve privatization as an end in itself, but rather to promote the effectiveness of these projects within the framework of structural adjustment of the economies, with the aim of achieving optimal resource utilization. Variations are evident among these countries with respect to private sector background, philosophy, role, and stage of development as well as the prevailing attitude. Underlying the apparently similar outlook on the private sector in these countries are numerous essential differences, including the state’s approach to cooperation with the private sector. Therefore, the author’s call for the private sector to carry out the role of the “primum mobile” of the GCC economies represents a far-reaching aspiration. The private sector share of GNP remains extremely small, and realism requires that expectations not go beyond the limits of what is possible.

The Unified Economic Agreement should not be regarded as an end in itself. The agreement remains a general framework within which movement is possible; it is also difficult to judge its success or failure owing to the short time that has elapsed since its entry into force in 1983.

Privatization in the GCC states evidently faces a number of basic problems:

  • the legal framework, with its varying degrees of development, is not yet appropriate to promote the private sector;

  • the differing investor philosophy, whereby investors are speculators in one state and conservatives in another;

  • government regulations and constraints are generally based on experiences of other countries that developed their legal framework under different circumstances; they thus constitute obstructions to private sector development and do not protect the consumer;

  • the absence of dynamism and a developed legal and procedural base; and

  • the need to develop the role of the banks and effect harmony in their philosophy.

These problems, though significant, are not insurmountable. To remove them, however, requires more time and effort. In our quest to achieve success in this area, we must adopt a long-term strategy and a wide horizon. In this context, the author refers to a set of joint ventures on which my observations are

  • there is a need to develop the Unified Economic Agreement not as an end in itself but as a developed and dynamic framework;

  • more attention should be directed to the risks of isolationism, and the GCC should be developed to become an economic grouping that takes into account both Arab and international dimensions;

  • the creation of a unified financial market is unrealistic at present in view of the limited volume of transactions, the fact that supply is less than demand, the lack of balance in the criteria used, and the incompatibility between the supervisory authorities and the control systems;

  • integration of production activities rather than competition should be the guideline for GCC states; and

  • attention should be paid to promoting the banking sector as an incentive to the private sector.

Emphasis should be laid on performance efficiency, serious planning, and perseverence in implementation rather than on the form of ownership. An optimistic outlook should be promoted and matters should be handled with realism. A global view, a wide horizon, dynamic evolution, and the criteria of efficiency and commitment are all essential prerequisites for the development of GCC joint ventures (both public and private) as significant tools for consolidating the economic integration efforts of the GCC states.

For privatization to be taken seriously and with a sense of commitment, and not as a transient manifestation—as was the case with socialism in the 1960s—it should be viewed within an overall framework and in the nature of its interaction with the requirements of structural adjustment designed to achieve the optimal utilization of resources. The Arabic equivalent of the term privatization deserves to be reviewed, as it could denote the allocation of benefits to a specific social class at the expense of society as a whole, in the absence of fairness and control.

The views expressed herein are those of the author and do not necessarily reflect those of the Secretariat of the Cooperation Council for the Arab States of the Gulf (Gulf Cooperation Council) or any of its member states.

R. Vernon, “Economic Aspects of Privatization Programs,” The Economic Development Institute (Washington: World Bank, 1987), pp. 2–4.

Jan Tinbergen, International Economic Integration (Amsterdam; New York: Elsevier, 2nd rev. ed., 1965); L.B. Mennes and A.J. Stoutjesdijk, Multicountry Investment Analysis (Baltimore, Maryland: Johns Hopkins University Press, 1985), p. 8.

Financial institutions include banks and insurance.

R.S. Kyanor and K.F. Schutz, Industrial Development: A Practical Handbook for Planning and Implementing Development Programmes (New York: Praeger, 1973), p. 30 and chap. 8.

See Peter Corbin’s report to the GCC Secretariat, February 1985, p. 50. The report has no title.

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