E. S. BIRYUKOV

Candidate of Economic Sciences

MGIMO (U) of the Russian Foreign Ministry

Keywords: GCC, Saudi Arabia, economic diversification, structural adjustment

The role of the countries of the Arabian Peninsula in the global economy, as is known, is determined by significant hydrocarbon resources - proven oil and gas reserves account for 29.4% and 21.6% of the world's reserves.¹ At the same time, their population is less than 1% of the world's population - the six countries of the Cooperation Council for the Arab States of the Persian Gulf - GCC (Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman, Bahrain) are home to 48.6 million people2 (including foreigners - 41%)³.

Thanks to their huge hydrocarbon reserves, these countries have managed to overcome their deep socio-economic backwardness in a very short time - over the past decades-and come closer to the industrialized countries in a number of defining indicators. Oil exports have created a national accumulation fund and led to systemic changes in economic development - the import of modern oil equipment, the influx of foreign specialists, the construction of paved roads, seaports and other infrastructure.⁴ However, in the 1970s and 1980s, no serious steps were taken to diversify the economy.

An alarming situation was observed in the early 1980s, when there was a sharp decline in oil prices. If in 1981 the price for a barrel of Dubai crude oil was about $34, then in 1986 it was about $¹³⁵. Since 1982, the GCC countries have often run their budgets into significant deficits. Under these conditions, the task was put forward to use petrodollars to create other sectors of the economy that would make these states less dependent on oil exports, as well as the import of a wide range of goods, increase the level of economic stability, and create jobs for the local population.

Let us consider the main aspects that characterize the GCC economic development model at the present stage.

DEPENDENCE ON OIL

The GCC countries ' dependence on oil continues to be high. The average share of the oil industry in the GDP of these countries is 28%, industry accounts for 9%. Although in 1990 the share of industry was 10%⁶.

In the GCC countries ' budget revenues, the share of oil revenues is more than 80% (only in Oman-65%, and in the UAE-less than 45%).

The budgets of four GCC countries that are major oil exporters-Saudi Arabia, the United Arab Emirates, Qatar and Kuwait-are deficit-free with oil prices starting from $40 (Cu-

Figure 1. Oil price required to avoid budget deficits in GCC countries, 2014 ($ per barrel).

Источники: Devaux P. Economic diversification in the GCC: dynamic drive needs to be confirmed // Conjoncture: BNP-Paribas. July-August 2013, p. 18; Trask T., Stukenbrock K. How Do Middle Eastern Sovereigns' Fiscal Breakeven Oil Prices Affect Credit Ratings and Oil Prices? // Standard & Poor's. February 2013, p. 4.

Chart 2. Dynamics of imports from Saudi Arabia and Russia, 2005-2012 (%).

Source: World Development Indicators. World Bank 2005 - 2012; BP Statistical Review of World Energy 2014. L., BP, 2014, p. 6.

Figure 3. Import - to-export ratio: comparison of Saudi Arabia and Russia, 2005-2012 (%).

Source: World Development Indicators. World Bank 2005 - 2012.

veit) to $90 (Saudi Arabia) per barrel (see chart 1).

Thus, the GCC countries, firstly, have the opportunity to pass through a period of short-term decline in oil prices without pain, and secondly, to fight with other oil producers (including, behind the scenes, with Russia) by playing for a temporary reduction in prices. In addition, they have accumulated reserves in their sovereign wealth funds that exceed their annual GDP, which is also a very reliable "safety cushion" even in the event of a period of low prices for several years.

For example, the assets of the Abu Dhabi Investment Agency amount to $773 billion, the Saudi Arabian Monetary Agency-$757 billion, the Kuwait Investment Agency - $548 billion, and the Qatar Investment Agency - $256 billion ⁷ (see Table 2). In other words, if the average annual oil prices fall below $100 per barrel, such assets are: producers such as Russia, Iran, Iraq, Venezuela, and Algeria immediately begin to experience serious difficulties with budget execution, but for the United Arab Emirates, Qatar, and Kuwait, even long-term prices of about $70 are not critical. For Saudi Arabia, it is" problematic " to find the price at a level below $80, but only in the long term.

In general, considering the possibility of finding oil prices at lower levels than in 2011-2013, a number of points should be noted.

First, in the long run, all oil exporters are sensitive to lower prices, and this confirms the risks of export monostructure. However, in the short term, the GCC countries, unlike other oil exporters, are much better adapted to lower prices.

Secondly, the average annual level of oil prices above $100 (in 2013 prices) was observed on world markets only in 1979-1980, 2008 and 2011-2013, so their decline from these levels is objective, since at high prices there is an exit to the oil market with a high cost of production (subjective factors can be applied to the oil market). (speed and scale of descent).

Third, Russia, in terms of ruble-denominated budget revenues, does not lose anything when oil prices fall, since the ruble devalues symmetrically. On the contrary, the exchange rate of the GCC countries is fixed, and this leads to a decrease in their income when the oil price falls, but their population, unlike the Russian one, does not face difficulties in reducing the oil price in the short term.

At the same time, the decline in oil prices makes it vital for Russia to diversify its economic structure. Ways to ensure diversification should include tax incentives and concessional lending to priority industries.

Similar to the GCC countries ' share in GDP and budgets, oil exports also account for a significant share of their exports. The countries in question are reducing their foreign trade in goods to very high surpluses,

Table 1

Accumulated foreign direct investment (FDI) of the GCC countries, 1990-2012 ($ million)

Source: World Investment Report 2013. Geneva: UNCTAD, 2013, p. 219.

first of all, due to the export of oil. For example, in 2003-2013, the total current account surplus of the balance of payments (trade in goods and services) of the six Gulf countries amounted to a huge amount-about $2.2 trillion, and about $ 1 trillion in 2011-2013 alone. ⁸

At the same time, it should be noted that there are two trends characteristic of the GCC countries in the context of high oil prices.

The first is the growth of social expenditures in the budget structure, which, in the event of a decrease in the price of "black gold", will be impossible to maintain. From the point of view of economic theory, such expenses are inefficient. In the Arabian monarchies, such an increase in social spending occurred sharply in 2011, against the background of mass protest movements taking place in a number of neighboring countries in the Middle East and North Africa. Of course, the issue of artificially reducing resource exports cannot be on the agenda, since incoming funds are one of the main factors for maintaining the pace of development gained in recent years (for the period 1999-2013, the average annual growth rate of the world economy was 2.6%; the five GCC countries - from 4.5 to 5.1%, and Qatar-11.9%⁹), but the issue of directing part of the funds to finance the structural adjustment of the economy, import substitution is very relevant.

The second trend is a gradual increase in imports, i.e. we can talk about the so-called "eating up" of petrodollar revenues. Figures 2 and 3 show comparative data on import growth and dynamics of the import-to-export ratio for 2005-2012 in Saudi Arabia and Russia.

The charts show that the dynamics of imports correlated with the dynamics of oil prices, but imports grew at a faster pace. Both countries are characterized by an increase in the" eating up " of exports by imports, and for Russia this negative trend is even more pronounced - from 61% to 75%, compared with the growth from 46% to 54% in Saudi Arabia (which, of course, can also be explained by the small and already saturated import market of Saudi Arabia).

Saudi Arabia's import-to-export ratio of 80% in 2009, followed by a sharp decline, is explained by the fact that in the face of falling world oil prices, exports collapsed by 39%, while imports fell by only 14%. The subsequent decline in this indicator to 54% would be incorrect to interpret only as a result of the Kingdom's purposeful policy to improve the structure of trade: in 2012, imports reached a historic high, but the same thing happened with exports-as a result of rising oil prices and production volumes.

INVESTMENT POLICY

Since the 1990s, the Arabian monarchies have changed their approach to investment and have come to the conclusion that it is appropriate to direct them to national economies. In the 1970s, their economies were unable to use the sharply increased flow of petrodollars, so these funds were mainly invested abroad (partly at the expense of these funds, banks in developed countries issued loans to developing countries, which subsequently led to the world debt crisis in 1982).

The Arabian monarchies also seek to attract foreign direct investment (PII). The most important strategic direction for diversifying the economies of the GCC countries and changing their specialization in the international division of labor is the policy of turning the region into a major center of capital, and not just focusing on energy exports - the Arabian monarchies have the necessary competitive advantages in the form of an excess of capital. The dynamics of accumulated PPI is shown in Table 1.

Overall, the multi-fold increase in GCC PPI exports and imports is attributed to a significant increase in oil and gas prices and economic growth. The GCC countries also use offshore investment mechanisms - according to the Tax Justice Network group, the volume of outflow of funds to offshore companies in 1970 - 2010 was $496 billion for Kuwait, and $308 billion for Saudi Arabia. However, the GCC countries are more likely to attract real foreign investment.

More and more actively, the Arabian monarchies are using the direction of exporting investments to diversify their economy (significant funds continue to be invested in expensive real estate, luxury goods and sports clubs), and here two separate strategies are characteristic. In such sectors, where the Gulf countries have accumulated a certain level of competence in the national economy, companies (mainly GO-

Table 2

The largest sovereign investment funds in the world and the GCC countries

Источник: Sovereign Wealth Funds Institute - http://www.swfinstitute.org/fund-rankings

The GCC member countries and North African countries have begun to expand their presence in the markets of other GCC partner countries and North African countries in order to expand beyond the narrow national markets. These sectors are construction, real estate, finance, telecommunications and transport.

It should be noted that similar trends are also typical for Russian companies entering the markets of the CIS countries and are aimed at expanding their activities and obtaining new assets.

Gulf companies follow a different strategy when investing in developed countries and fast-growing markets in Asia. These investments, in contrast to the approach mentioned above, are not based on the principle of creating enterprises from scratch (the so-called greenfield), but mainly through mergers and acquisitions, with the aim of: a) strengthening opportunities in industries existing in home markets , such as finance, hotels and petrochemicals; b) but also, and to a greater extent, to acquire competencies in industries that are not developed in national economies, such as automotive, aerospace, alternative energy sources and petrochemicals.

This strategy of the GCC differs from the approach of other countries around the world, which initially produced a certain amount of products on the national market, and then began to make foreign investments.¹⁰

An example is the Abu Dhabi government-owned Mubadala sovereign investment fund, which has assets exceeding $60 billion. Its structure includes 9 divisions, including those specializing in aerospace, information and communication, industrial and other technologies. In recent years, Mubadala has acquired stakes in aircraft manufacturer Piaggo Aero (Italy), developer of technologies used in aircraft construction - SR Technics (USA), semiconductor manufacturer Advanced Micro Devices (USA), created a joint venture with the American General Electric. The Qatar Investment Authority, in addition to investing in the financial sector and real estate, invests in the aerospace, automotive and construction industries - for example, in order to transfer advanced technologies and know-how, the well-known German construction company Hochtief¹¹.

In such cases, through exchanges between the parent company and foreign subsidiaries - in the form of technological knowledge transfer, employee relocation, and intra - firm trade-the export of PPI can become a source of improved competitiveness in the national market. But in the absence of-

The question arises as to the channels through which cross-border acquisitions of companies can contribute to the development and diversification of the economies of the countries of the region.

This approach of the Arabian companies is caused by the excess of financial resources. The transfer of foreign technologies does not mean innovation, but modernization, catching up with development. Countries such as Japan, Korea, and China (and before them, the USSR) were able to start innovative activities after the transfer of technology. It is doubtful that the GCC countries will be able to do this, given the lack of qualified labor. But how true these doubts are, time will tell.

In this regard, in our opinion, it is necessary to pay attention to the sovereign investment funds in the GCC countries. Most of the world's countries with large foreign trade surpluses significantly increased their gold and foreign exchange reserves in the "zero" years or created sovereign investment funds (47 of the 75 main sovereign investment funds were created after 1999). In the Gulf countries, 14 such funds were created (see Table. 2), including the first in history, founded in Kuwait in 1953. Their assets amount to more than $2 trillion, which is more than 35% of the assets of all sovereign investment funds in the world.

For comparison, an important project for attracting PPI, in particular, to the Russian economy, was created in 2011. The Russian Direct Investment Fund (RDIF). It attracts funds from foreign co-investors to the Russian economy, while it invests no more than 25% of the amount required for the project. In any case, the presence of such a state-owned investor is a guarantee for foreign partners.

Among the major foreign companies, RDIF cooperates most actively with Arab ones - agreements have been signed with the Abu Dhabi Department of Finance to jointly invest $5 billion, the Mubadala Foundation-$2 billion, and the Kuwait Investment Corporation - $0.5 billion. In total, the RDIF has already created funds worth $15 billion, of which $7 billion has been invested; the contribution of the RDIF itself amounted to $1.2 billion ¹². At the same time, the scale of investments is $7 billion.

Public investment plays a huge role in the economic development of the GCC countries.

Currently, the Arabian monarchies are in the first place in the world in terms of state project financing. For example, the Saudi authorities are implementing projects with a total cost exceeding $365 billion. ¹³ An ambitious project is the construction of so - called "economic cities" in various areas of the Kingdom that are less developed compared to other regions of the country-the state has already started creating 4 such cities and is analyzing the possibility of building two more. These cities will develop service industries and four important industrial sectors-aluminum, steel, fertilizer production and petrochemicals. The population of cities will be almost 3 million people, or about 10% of the country's population.

In the UAE, in 2008, a large-scale project "Abu Dhabi 2030" was adopted, which is supposed to turn the city into one of the largest capitals in the world. In the first 10 years alone, it is planned to invest more than $200 billion, with 60% coming from the private sector. ¹⁴ Dubai, in addition to implementing other projects, plans to spend $82 billion in the next decade. for the development of air transport ¹⁵ (owned by this Emirate, The Emirates is one of the largest air carriers in the world). Qatar, which has 13% of the world's gas reserves and a population of about 2 million people (including 220,000 Qatari citizens), invests $225 billion in 2011-2016 alone. within the framework of the National Development Strategy ¹⁶. In particular, since 2010, the country has already become the largest exporter of liquefied natural gas (LNG) to the world market.

ECONOMIC DIVERSIFICATION

The starting threshold for industrialization in the Arabian monarchies was extremely low. The share of the manufacturing industry, including petrochemical enterprises, was 3-5%¹⁷. Under these circumstances, the Governments of the GCC countries have begun to diversify their economies.

Petrochemicals played an important role. Over the past 20 years, the GCC countries ' refining capacity has increased dramatically (in the UAE-by 278%, Saudi Arabia-by 51%, Kuwait-by 205%, while in the world as a whole-by 27%), but their share of the world's oil refineries (refineries) is only about 5%, i.e. Arabian oil is processed mainly in other regions of the world.

If major investment projects are implemented (for example, Saudi Arabia is planning to almost double its refining capacity, and Kuwait is also planning a significant increase in refining), the countries of the sub-region can become exporters not only of oil, but also of petroleum products, which will help reduce the deficit of refining capacity and produce products with greater added value. However, the contribution of these industries to job creation may be limited, as they are capital-intensive rather than labor-intensive.

The aluminum industry has developed significantly - in 2014, as a result of the merger of companies from Abu Dhabi and Dubai, the company Emirates Global Aluminum was created. Large production facilities operate in Saudi Arabia and Bahrain. The GCC accounts for ⁹% of the world's aluminum production18. The electric power and cement industries, as well as fresh water production, have been developed.

The special economic zones of the GCC countries, the largest of which are the Khalifa Industrial Zone in Abu Dhabi and the King Abdullah Economic Zone in Saudi Arabia, should play an important role in the further implementation of the industrialization strategy. Due to their favorable economic and geographical location, the special economic zones of the GCC countries are much more important for economic development than the special economic zones of the GCC countries.-

Figure 4. GCC countries ' foreign trade turnover, exports and imports ratio to GDP (%).

Source: World Development Indicators. World Bank 2014.

For example, in Russia, the regulation of which was reformed in 2011. But despite the reforms, this mechanism has not yet become an effective tool for structural adjustment and development of the Russian economy: fewer than 400 companies are registered in such zones, many of them - less than a dozen.

The GCC countries, on the contrary, use the opportunities of special economic zones very actively.

First, it was caused by the fact that in the conditions of rather strict regulation for the protection of national businesses that was formed in the 1970s-1980s (which, first of all, consisted in limiting opportunities for foreigners to participate in the share capital of companies), a more liberal regime within certain territories - special economic zones -was created. it allowed us to solve problems without compromising the national business.

In some cases, for example, when creating international financial centers (in Abu Dhabi, Doha, Dubai, Manama, Riyadh), preferential treatment of special economic zones was a necessary condition for positioning financial centers on the world market. As a result, in just a few years, such centers of the sub-region were included, according to the influential rating agency Z/Yen Group, in the list of 40 leading international financial centers, ahead of Beijing, Rio de Janeiro, and Moscow.

Secondly, the economic model of the GCC countries, which have a favorable economic and geographical location, is characterized by a high degree of participation in world trade - the foreign trade turnover of the United Arab Emirates, Bahrain, Oman and Qatar exceeds their GDP (see fig. 4), therefore, the creation of re-export zones also has a stimulating effect on the economy and growth of other industries, primarily tourism and transport. Interestingly, in the five Arabian monarchies, exports account for more than 70% of GDP, which is a very high figure.

It should be noted that in relative terms, no significant results have been achieved in the creation of the manufacturing industry - its share, as mentioned above, does not exceed 10% of GDP, and the GCC countries, like Russia in particular, continue to be critically dependent on the oil market.

In the Arabian monarchies, the development of industry is hindered, firstly, by the lack of starting conditions; secondly, by the low qualification and labor culture of the labor force and the insufficient level of higher technical education; thirdly, by the inability to compete on price with the countries of East Asia; fourthly, by the lack of national scientific and technical schools; fifth, low capacity of the domestic market.

At the same time, it is unfair to talk about the lack of achievements of the GCC countries in diversifying their national economies. Their recipe is the development of the service sector, in the creation of which significant progress has been made. At the same time, they use their competitive advantages such as the availability of capital, favorable economic and geographical location, and climate. In particular, the GCC countries began to specialize in the international division of labor not only in oil exports, but also in financial services, transport and tourism.

Regional financial centers have been established in Dubai (UAE), Bahrain, Qatar and Saudi Arabia. The Emirates of Abu Dhabi and Dubai, as well as Qatar, are developing projects for the construction of air hubs ,etc. Telecommunications services are developing, for example, satellite communication services for most Arab countries are provided by the Arabsat organization (headquartered in Saudi Arabia).

The share of non-oil industries in the GDP of the "Arab six" has grown from 54% in 1990 to 72% in 2010, which clearly shows the progress in economic diversification, and they were achieved against the background of a multiple increase in oil prices on world markets. Qatar's GDP is largely formed by the oil industry - 44%, and Bahrain, whose oil resources are almost depleted, to a lesser extent-8%. In the region's largest country, Saudi Arabia, the share of oil in GDP is 21%¹⁹. Achievements in diversification have enabled GCC countries to demonstrate GDP growth rates that exceed those of the United States and Europe, which has been the case for developing countries as a whole in recent decades.²⁰

It is important to note that, despite the undoubted and quantifiable success of the GCC countries in developing the service sector, foreign trade in services is reduced to a negative balance. This is also typical for most other countries in the world with a positive foreign trade balance.

trade in goods ²¹. However, the volume of services produced within the country significantly exceeds the volume of imports, so diversification is really taking place.

A number of service industries in the Gulf countries have not developed much until recently, such as insurance. As a result, back in the early 2000s, the region was ranked last in the world in terms of insurance industry development, ²² but recently this sector has also been developing due to practical business needs.

PRIVATE SECTOR

Currently, the Arabian model of economy is entering a new stage, where market mechanisms are being introduced into the economy. The public sector is not able to cope independently with large-scale economic tasks and new challenges at the stage of modernization. But this problem is not equally acute in every country.

In Oman, for example, which has recently begun to cultivate state-owned capitalist institutions, the possibilities of the public sector as a powerful engine of industrialization and modernization are far from exhausted, while in Saudi Arabia, on the contrary, state levers are fully used, and without the active involvement of national capital, it becomes impossible to ensure the progressive development of the economy.

Ensuring a favorable investment climate, an open market and transparent business environment are important conditions for economic diversification - together, these factors make investments in non-oil sectors more attractive. Moreover, increasing the role of the private sector in services that were previously mainly produced by the public sector, such as water supply, electricity generation and transportation, and healthcare, will increase diversification. In recent years, the GCC countries have adopted a number of privatization laws and implemented privatization in a number of sectors, such as telecommunications. In addition, the involvement of local labor resources should be an important part of diversification.

In the World Bank's World Bank Doing Business ranking, the GCC countries occupy the top five places among the Arab countries of the Middle East and North Africa, having significantly improved their positions in recent years. So, the UAE ranks 22nd, and Saudi Arabia-49th place ²³. In Russia, for example, the share of the private sector in the economy was already 70% in the 1990s, but by the" zero " years it had fallen to 50%. In the rating of business conditions, Russia ranks 62nd.

* * *

The analysis allows us to conclude that the scheme of development of the Gulf economies most closely corresponds to the Asian model, in which the state forms the main proportions of socio-economic development, influencing the economic system through both direct, i.e. mainly legislative, and indirect, i.e. financial, regulation and intervention. But at the same time, the Arabian model has a number of features and advantages, which contributes to the development of the oil and gas industry and the diversification of production based on it, as well as an increase in the share of GDP in the financial and trade sphere and the service sector based on the turnover of export revenues.

The GCC countries are more dependent on oil than, for example, Russia. At the same time, over the past 40 years, they have made impressive progress in economic development, moving from a pre - capitalist level of development to indicators that correspond to, and in some cases even surpass, developed countries.

Some aspects of the "Arabian experience" may be interesting and useful for Russia as well. These are the focus of large public investments, the achievement of international specialization in the financial sector and tourism, the operation of special economic zones, the activities of sovereign investment funds, the ability to advance in international competitiveness and business ratings in a few years, etc.

¹ BP Statistical Review of World Energy 2014. L., BP, 2014, p. 6, 20.

² World Development Indicators 2014. World Bank, Washington, 2014 - http://wdi.worldbank.org/table/2.1

^{Baldwin-Edwards M.} 3 Labour immigration and labour markets in the GCC countries: national patterns and trends. L., 2011, p. 11.

^{Aleksandrov I. A.} 4 Monarchies of the Persian Gulf. Stage of modernization, Moscow, 2000, p. 8. (Aleksandrov I. A. 2000. Gulf monarchies: the stage of modernization) (in Russian)

⁵ BP Statistical Review.., p. 15.

^{Devaux P.} 6 Economic diversification in the GCC: dynamic drive needs to be confirmed // Conjoncture: BNP-Paribas. July-August 2013, p. 18.

^{Overchenko M.} 7 Prices for raw materials have fallen to the lowest level since the global crisis / / Vedomosti. 03.10.2014.

⁸ Author's calculations based on: IMF Regional Economic Outlook 2005, 2013.

⁹ Author's calculations for: World Development Indicators for the corresponding years.

^{Kravchenko E.} 10 $32 trillion in offshores / / Vedomosti. 24.07.2012.

¹¹ World Investment Report 2011. Geneva: UNCTAD, 2011.

¹² RDIF website - www.rdif.ru

^{Marks J.} 13 Economic cities point to a sea change in thinking / J. Marks, N. Marroushi // The Banker. 2007. November, p. 36.

¹⁴ Abu Dhabi to spend $200b in the next five years on urban development. January 5, 2008 - http://www.wam.org.ae

^{Dubai Aerospace} 15 buys planes, August 24, 2007 / / Expert Online - http://www.expert.ru

^{Kasaev E. O.} 16 Ekonomicheskiy proryv Katara [Economic Breakthrough of Qatar]. 2013, N 1. (Kasaev Е. О. 2013. Economic breakthrough of Qatar // Aziya i Afrika segodnya. N 1) (in Russian)

^{Alexandrov I. A.} 17 Decree. soch., p. 40.

^{Al Asoomi M.} 18 The changing face of GCC's industrial activity / Gulf News, June 25, 2014.

^{Devaux P.} 19 Op. cit.

^{Rodionova I. A., Shkvarya L. V.} 20 On the threshold of the "Asian Industrial Age". 2012, N 12. (Rodionova I.A., Shkvarya L.V. 2012. On the threshold of the "Asian industrial age" // Aziya i Afrika segodnya. N 12) (in Russian)

^{Biryukova O. V.} 21 Trade services as an engine of integration // AiAS. 2014, N 5. (Biryukova O. V. 2014. Trade services as an engine of integration / / Aziya i Afrika segodnya. N 5) (in Russian)

^{Biryukov E. S.} 22 development of the insurance industry in the oil-producing Arabian monarchies at the present stage // Insurance. 2007, N 11.

²³ World Doing Business 2014. Washington. World Bank 2014. P. 4.

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