Special Economic Cities Special Economic Cities in the GCCin the GCC

The Way Forward…MaybeThe Way Forward…Maybe

CPT Kyle Phillips, USACPT Kyle Phillips, USANS3041NS3041

IntroductionIntroduction ThesisThesis

Rentier StatesRentier States

Special Special Economic CitiesEconomic Cities

Case StudiesCase Studies• DubaiDubai

• OmanOman

• Saudi ArabiaSaudi Arabia

ConclusionConclusion

Rentier States of The GCCRentier States of The GCC

Characteristics of GCC States:Characteristics of GCC States:

States rely on oil rent to take care of States rely on oil rent to take care of populationspopulations

Expectation for Nationals to be given Expectation for Nationals to be given public sector jobspublic sector jobs

Women were excluded from the Women were excluded from the workplaceworkplace

Expatriates were brought in to fill less Expatriates were brought in to fill less desirable jobsdesirable jobs

Problems for Rentier StatesProblems for Rentier States

When the first oil boom ended states When the first oil boom ended states saw negative effects, and felt a need saw negative effects, and felt a need for diversification of economiesfor diversification of economies

Need to diversify their economies to Need to diversify their economies to lessen future negative effectslessen future negative effects

Need to privatize their economies to Need to privatize their economies to share burden and participate share burden and participate internationallyinternationally

Special Economic CitiesSpecial Economic Cities

Used to stimulate Used to stimulate economieseconomies

To dampen the To dampen the effects of changing effects of changing oil pricesoil prices

ToTo draw in Foreign draw in Foreign InvestmentInvestmentIncreaseIncrease tourism & tourism & service industriesservice industries

Dubai and Free ZonesDubai and Free Zones Dubai is an emirate of the UAE and Dubai is an emirate of the UAE and

has faced problems of a relative lack has faced problems of a relative lack of oil from early onof oil from early on

Ruling family was always a trading Ruling family was always a trading and entrepreneurial family, took a and entrepreneurial family, took a risk dredging Dubai Creek to create a risk dredging Dubai Creek to create a world class portworld class port

Took initiative to draw investment Took initiative to draw investment with tourism and the creation of free with tourism and the creation of free zoneszones

Economic Free ZonesEconomic Free Zones Areas within cities that offer partial or Areas within cities that offer partial or

complete foreign ownershipcomplete foreign ownership

Drastically reduced or no corporate Drastically reduced or no corporate taxes for a set period of timetaxes for a set period of time

No requirement for repatriation of profitNo requirement for repatriation of profit

Generally attractive to foreign investors Generally attractive to foreign investors and therefore usually drive real-estate and therefore usually drive real-estate

values upvalues up

OmanOman Small ruling family means that rulers Small ruling family means that rulers

are not as well entrenched as in other are not as well entrenched as in other GCC stateGCC state

Economic diversification, privatization, Economic diversification, privatization, and Omanization are the cornerstones and Omanization are the cornerstones of the 6of the 6thth 5 year plan 5 year plan

77thth 5 year plan includes reduced 5 year plan includes reduced reliance on oilreliance on oil

OmanizationOmanizationBringing Omanis Back in the WorkforceBringing Omanis Back in the Workforce

Omanization is only happening at a Omanization is only happening at a modest level in higher end jobsmodest level in higher end jobs

Minimum wages are still drastically Minimum wages are still drastically different between Omanis and different between Omanis and expatriate workersexpatriate workers

Setting quotas often leads to hiring of Setting quotas often leads to hiring of Omani workers that don’t work but are Omani workers that don’t work but are just on the booksjust on the books

Appealing to nationalism has yielded Appealing to nationalism has yielded little to no resultslittle to no results

What is Going RightWhat is Going Right

Creation of cities like the Knowledge Oasis Creation of cities like the Knowledge Oasis Muscat which are not only free zones but Muscat which are not only free zones but also help to build business and train also help to build business and train peoplepeople

Infrastructure has grown exponentially (12 Infrastructure has grown exponentially (12 hospital beds in 1970s to top ten hospital beds in 1970s to top ten healthcare systems in the world)healthcare systems in the world)

Focus on education has dropped illiteracy Focus on education has dropped illiteracy in Oman from 45% in 1990 to 25% in 2002in Oman from 45% in 1990 to 25% in 2002

Foreign Direct Investment FlowsForeign Direct Investment FlowsIn Millions and As a Percentage of Fixed Capital FormationIn Millions and As a Percentage of Fixed Capital Formation

Millions of $Millions of $ 1985-951985-95 19981998 19991999 20002000 20012001 20022002 20032003 20042004 20052005

UAE 9797 258258 -985-985 -515-515 257257 13071307 42564256 83598359 1200012000

Oman 106106 101101 2121 4444 4242 109109 489489 200200 715715

Saudi Arabia 9999 42894289 -780-780 -1884-1884 2020 453453 778778 19421942 46284628

Turkey 529529 940940 783783 982982 32663266 11371137 17521752 28372837 96819681

Developing Countries

5005250052 191284191284 229295229295 246057246057 209431209431 163583163583 175138175138 275032275032 334285334285

World 180901180901 686028686028 10790831079083 13929571392957 823825823825 651188651188 557869557869 710755710755 916277916277

% of Fixed Cap.% of Fixed Cap. 1985-951985-95 19981998 19991999 20002000 20012001 20022002 20032003 20042004 20052005

UAE    1.10%1.10% -7.80%-7.80% -3.90%-3.90% 2.00%2.00%    21.40%21.40% 37.80%37.80% 51.80%51.80%

Oman 6.00%6.00% 0.90%0.90% 1.90%1.90% 1.70%1.70%       14.40%14.40% 4.30%4.30% 14.70%14.70%

Saudi Arabia 1.20%1.20% 0.20%0.20% 0.50%0.50% -0.10%-0.10%       2.00%2.00% 4.50%4.50% 9.40%9.40%

Turkey 1.70%1.70% 1.90%1.90% 2.20%2.20% 12.40%12.40%       4.70%4.70% 5.30%5.30% 13.60%13.60%

Developing Countries

4.40%4.40% 14.30%14.30% 14.60%14.60% 12.70%12.70% 10.50%10.50%    9.30%9.30% 10.70%10.70% 12.80%12.80%

World 3.90%3.90% 16.50%16.50% 20.80%20.80% 12.80%12.80% 12.20%12.20%    7.30%7.30% 7.70%7.70% 9.40%9.40%

-4000

-2000

0

2000

4000

6000

8000

10000

12000

14000

1985-1995Avg

1998 1999 2000 2001 2002 2003 2004 2005

UAE

Oman

Saudi Arabia

Turkey

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

1985-1995Avg

1998 1999 2000 2001 2002 2003 2004 2005

UAE

Oman

Saudi Arabia

Turkey

Developing Countries

World

Saudi ArabiaSaudi Arabia

Success of economic cities in UAE and Oman Success of economic cities in UAE and Oman have lead to other countries replicating themhave lead to other countries replicating them

Saudi Arabia plans to build the biggest of all Saudi Arabia plans to build the biggest of all of them King Abdullah Cityof them King Abdullah City

King Abdullah CityKing Abdullah City City will be divided into 6 distinct sectionsCity will be divided into 6 distinct sections

• Huge seaport and airport will allow for:Huge seaport and airport will allow for: 300,000 more pilgrims to enter Saudi Arabi for the Hajj300,000 more pilgrims to enter Saudi Arabi for the Hajj Allow largest ships in the world to dock and have Allow largest ships in the world to dock and have

seemless transition from rail to seaseemless transition from rail to sea

• Industrial DistrictIndustrial District Indigenous Saudis will be trained for opening jobsIndigenous Saudis will be trained for opening jobs

• Financial IslandFinancial Island 60000 professional jobs60000 professional jobs

• Education ZoneEducation Zone

• ResortsResorts

• Residential AreaResidential Area

Developing TourismDeveloping Tourism

Skyrocketing land Skyrocketing land values lead to huge values lead to huge land reclamation land reclamation projectsprojects

Construction in places Construction in places like Dubai have like Dubai have allowed to others like allowed to others like Oman to offer more Oman to offer more pristine experiencespristine experiences

Helps to sustain economyHelps to sustain economy

ConclusionConclusion Cities survival and growth are still Cities survival and growth are still

based largely on oil revenuesbased largely on oil revenues

Indigenization of the workforce is an Indigenization of the workforce is an acknowledged problem but solutions acknowledged problem but solutions are not yielding desired resultsare not yielding desired results

Explosions in tourism industries have Explosions in tourism industries have helped to diversify economy but are helped to diversify economy but are still just another form of rent still just another form of rent