TRENDS speaks to Khalid Abdulla-Janahi, Chairman of Vision 3, who says it is of utmost importance for GCC economies to address the dollar-peg issues.
GCC economies are struggling at this moment. They are opting for strict austerity measures and massively reducing subsidies to balance the government budgets. Will this deliver the desired result?
GCC economies are basically consumer-based economies at large. If you look at IMF (International Monetary Fund) reports, you will see there is a pressure on these economies to make structural reforms. However, the common man, who is used to getting subsidies, is suddenly seeing that his purchasing power is going lower and lower. If we look around the world, the middle class, which is the backbone of any true economy, has been eroding and now you are further reducing its purchasing power in the region.
The prices of the things we use and consume are increasing. So, as a common man, you will feel that you are losing substantially on your purchasing power. In the end, it is the common manss who suffers. People think that the oil price is going to reach up to $100 (per barrel), but that seems extremely difficult. This is despite the fact that prices are increasing, due to the OPEC and non-OPEC countries sticking to their agreement and due to ongoing regional problems, including the current Kurdish issue.
So what is your advice?
When you undertake reforms, you also need to take care of the social fabric. Everyone in society has to accept that we are not going to be as rich as we were two years ago; this applies to all of us.
We have to adapt to the new way of life, which means reduce your leisure trips – make it two trips a year, or one trip a year or one trip every other year – as an example.
That’s why I have been saying that, rather than cutting subsidies big time or rather than charging VAT (value-added tax), which is going to hit the common man big time, there should be some sort of tax on individuals’ wealth, regardless of their nationalities. These are the individuals who have amassed huge wealth from this region.
I personally use a very simple equation – the person who asks for reforms should first pay the price himself before asking others to pay. And in today’s scenario, the man in the street needs to see that everyone is paying the price and it is not only him. Here, we come down to issues such as transparency and disclosures, as all of these issues have become a part and parcel of the way we deal with each other.
For example, there are rich people who can afford to buy things from London and Paris – they pay VAT there and come back. But the ones who cannot buy things from abroad have to buy them locally, where they are going to be charged VAT in the coming months – so the poor are paying the VAT, not the rich.
Can you provide a short-term economic outlook for the region? What do you think is the immediate economic challenge?
The economic outlook for the MENA region, as a whole, is poor. Potential economic growth that we are talking about is pegged at approximately only two to three percent, against the required mark of seven percent. I think one of the biggest economic challenges is our oil dependency.
Saudi is saying that, by 2020, they are not going to rely on oil but that is a very big challenge. However, it is doable and we all hope this can be done.
In the past, regional economies used to have a surplus of more than ten percent (on average) on the budget, whereas, currently, they are running a fiscal deficit of just under ten percent. So, earlier, we used to have a budget surplus, but now we have deficit.
Another problem is that we are still pegging our currencies to the dollar, so we are being hit from two sides – if on one side, our budget reserve is used to cover deficits, then, on the other, it is used to maintain the issue of pegging our currency to the dollar. So we are eating into our reserves big time.
In fact, when you look at the US economy, you will see there is growth – they are increasing their interest rates and they have developments. On the other hand, in our part of the world, we have to depend on dollars and increase and decrease interest rates accordingly.
Our economy is not growing at the pace of the US economy and, because of this reason, we are suffering. Therefore, the dollar-pegging issue is a topic that needs to be brought up and which needs an immediate attention.
Also, if you look at local reports, we have been talking a lot about shifting from a public-sector-based economy to a private-sector-led economy. But, the reality is, this is not happening. This is going to take time, unfortunately. They all are talking about it, but things are not starting. It has to start, or else we all have to suffer.
If we talk about the GCC region as a whole, are we getting enough investments from global corridors?
Most of the investments that you get are directly related with what you are investing outside. This is how I see it. The problem is that you don’t have the money to go out that much anymore. That’s another challenge that needs to be addressed. There is one simple thing called logic and logic eventually prevails. Logic says if I take 20 out, I will get five in, but the matter of fact is that the five is in the shape of FDI (foreign direct investment), so it just means that I have taken only 15 out.
Moreover, it should not be the big boys doing business only with the big boys; this does not give you sustainability. Another major problem is that we are looking only at tomorrow or the day after, but we never look at 20 years down the line. So there is a lack of sustainability.
To attract more FDIs, we should have a strong legal redressal system. No one should be above the law and the courts should be advanced substantially, in order to deal with legal matters related to FDIs.
Do you agree that the Arab world is losing an image war with the West?
You create your own image. And about the Arab image in West, the only person who can change this image is us (Arabs). We all are hoping that all of these [problems] finish very quickly for the good of the region. But whatever it is, it is ultimately our own loss. So we have to take the initiative and gradually bring things onto the right track.
Do we have an efficient streak of entrepreneurship in the region?
In the Gulf, we do have entrepreneurs, but we do not have true entrepreneurs. There are some who are entrepreneurs by luck, but we don’t have the exact spirit for entrepreneurship, per se, because we have not created the required environment for it.
When you look at the big boys – such as Bill Gates, Mark Zuckerberg, etc. – one thing they have in common is that they are always asking questions outside the box.
You should be always ready to ask questions. And this brings us back to education and critical thinking. I would say a pre-condition to be an entrepreneur is to be a critical thinker. Therefore, the system in the GCC should allow critical thinking and encourage it, rather than discouraging it, which, unfortunately, is the case in many parts of this region.
What is your view on the role of state-owned funds investing in global innovative ideas?
Let’s look at it this way – I have an idea and I am the guy with the brain. Now, there must be another guy with brains who is ready to take the risk of investing money in my idea. Here, state-owned funds could play a very constructive role in nurturing innovative ideas and taking them to their logical conclusion.
But one also needs to be very serious before taking any decision, because you are taking the wealth of the country away. We can always look at the example of Singapore – they only went outside [and made investments] once they developed their own infrastructure to a level that they had extra money that could be invested outside.