Special Economic Cities in the GCC The Way Forward…Maybe CPT Kyle Phillips, USA NS3041

Introduction Thesis Thesis Rentier States Rentier States Special Economic Cities Special Economic Cities Case Studies Case Studies DubaiDubai OmanOman Saudi ArabiaSaudi Arabia Conclusion Conclusion

Rentier States of The GCC Characteristics of GCC States: States rely on oil rent to take care of populations States rely on oil rent to take care of populations Expectation for Nationals to be given public sector jobs Expectation for Nationals to be given public sector jobs Women were excluded from the workplace Women were excluded from the workplace Expatriates were brought in to fill less desirable jobs Expatriates were brought in to fill less desirable jobs

Problems for Rentier States When the first oil boom ended states saw negative effects, and felt a need for diversification of economies When the first oil boom ended states saw negative effects, and felt a need for diversification of economies Need to diversify their economies to lessen future negative effects Need to diversify their economies to lessen future negative effects Need to privatize their economies to share burden and participate internationally Need to privatize their economies to share burden and participate internationally

Special Economic Cities Used to stimulate economies Used to stimulate economies To dampen the effects of changing oil prices To dampen the effects of changing oil prices To draw in Foreign Investment To draw in Foreign Investment Increase tourism & service industries Increase tourism & service industries

Dubai and Free Zones Dubai is an emirate of the UAE and has faced problems of a relative lack of oil from early on Dubai is an emirate of the UAE and has faced problems of a relative lack of oil from early on Ruling family was always a trading and entrepreneurial family, took a risk dredging Dubai Creek to create a world class port Ruling family was always a trading and entrepreneurial family, took a risk dredging Dubai Creek to create a world class port Took initiative to draw investment with tourism and the creation of free zones Took initiative to draw investment with tourism and the creation of free zones

Economic Free Zones Areas within cities that offer partial or complete foreign ownership Areas within cities that offer partial or complete foreign ownership Drastically reduced or no corporate taxes for a set period of time Drastically reduced or no corporate taxes for a set period of time No requirement for repatriation of profit No requirement for repatriation of profit Generally attractive to foreign investors and therefore usually drive real-estate values up

Oman Small ruling family means that rulers are not as well entrenched as in other GCC state Small ruling family means that rulers are not as well entrenched as in other GCC state Economic diversification, privatization, and Omanization are the cornerstones of the 6 th 5 year plan Economic diversification, privatization, and Omanization are the cornerstones of the 6 th 5 year plan 7 th 5 year plan includes reduced reliance on oil 7 th 5 year plan includes reduced reliance on oil

Omanization Bringing Omanis Back in the Workforce Omanization is only happening at a modest level in higher end jobs Omanization is only happening at a modest level in higher end jobs Minimum wages are still drastically different between Omanis and expatriate workers Minimum wages are still drastically different between Omanis and expatriate workers Setting quotas often leads to hiring of Omani workers that don’t work but are just on the books Setting quotas often leads to hiring of Omani workers that don’t work but are just on the books Appealing to nationalism has yielded little to no results Appealing to nationalism has yielded little to no results

What is Going Right Creation of cities like the Knowledge Oasis Muscat which are not only free zones but also help to build business and train people Creation of cities like the Knowledge Oasis Muscat which are not only free zones but also help to build business and train people Infrastructure has grown exponentially (12 hospital beds in 1970s to top ten healthcare systems in the world) Infrastructure has grown exponentially (12 hospital beds in 1970s to top ten healthcare systems in the world) Focus on education has dropped illiteracy in Oman from 45% in 1990 to 25% in 2002 Focus on education has dropped illiteracy in Oman from 45% in 1990 to 25% in 2002

Foreign Direct Investment Flows In Millions and As a Percentage of Fixed Capital Formation Millions of $ UAE Oman Saudi Arabia Turkey Developing Countries World % of Fixed Cap UAE 1.10%-7.80%-3.90%2.00% 21.40%37.80%51.80% Oman6.00%0.90%1.90%1.70% 14.40%4.30%14.70% Saudi Arabia1.20%0.20%0.50%-0.10% 2.00%4.50%9.40% Turkey1.70%1.90%2.20%12.40% 4.70%5.30%13.60% Developing Countries4.40%14.30%14.60%12.70%10.50% 9.30%10.70%12.80% World3.90%16.50%20.80%12.80%12.20% 7.30%7.70%9.40%

Saudi Arabia Success of economic cities in UAE and Oman have lead to other countries replicating them Success of economic cities in UAE and Oman have lead to other countries replicating them Saudi Arabia plans to build the biggest of all of them King Abdullah City Saudi Arabia plans to build the biggest of all of them King Abdullah City

King Abdullah City City will be divided into 6 distinct sections City 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 Hajj 300,000 more pilgrims to enter Saudi Arabi for the Hajj Allow largest ships in the world to dock and have seemless transition from rail to sea Allow largest ships in the world to dock and have seemless transition from rail to sea Industrial DistrictIndustrial District Indigenous Saudis will be trained for opening jobs Indigenous Saudis will be trained for opening jobs Financial IslandFinancial Island professional jobs professional jobs Education ZoneEducation Zone ResortsResorts Residential AreaResidential Area

Developing Tourism Skyrocketing land values lead to huge land reclamation projects Skyrocketing land values lead to huge land reclamation projects Construction in places like Dubai have allowed to others like Oman to offer more pristine experiences Construction in places like Dubai have allowed to others like Oman to offer more pristine experiences Helps to sustain economy Helps to sustain economy

Conclusion Cities survival and growth are still based largely on oil revenues Cities survival and growth are still based largely on oil revenues Indigenization of the workforce is an acknowledged problem but solutions are not yielding desired results Indigenization of the workforce is an acknowledged problem but solutions are not yielding desired results Explosions in tourism industries have helped to diversify economy but are still just another form of rent Explosions in tourism industries have helped to diversify economy but are still just another form of rent