By Dr Jassim Hussain
There is a clear difference in ranking between GCC countries in the 2015 Index of Economic Freedom released by Heritage Foundation and The Wall Street Journal a few days ago.
The two American organisations use conservative measures to ensure that the government’s role in economic affairs is considered only in relation to framing of laws and their implementation, and enabling the private sector to play a vital role in economic development.
This concept is based on private companies’ interest in making profits, which serves the entire economy at the end of the day as this obliges them to provide the best to consumers.
The economic freedom index is based on diverse variables, which are:
1. Freedom of establishing businesses
2. Freedom of international trade
3. Financial policies (tax rates and government loans)
4. Monetary policies (cash flow and interest rates)
5. Extent of government’s intervention in the economy
6. Foreign investments
7. Banking system and funds
8. Property rights
9. Administrative and financial corruption
10. Flexibility in recruitment and lay-offs.
Countries can score up to 10 points for each of these factors to collect a maximum of 100 points. In the index of 2015, Hong Kong, Singapore, New Zealand, Australia and Switzerland are on top and are classified as free economies.
It is notable to see a big country like Australia ranked so high as it is more customary for smaller economies to top the list. This reflects the level of cultural consideration for economic freedom.
The index for 2015 classifies three GCC countries, Bahrain, the United Arab Emirates and Qatar, as mostly free.
These economies have similar financial and monetary policies, like the near-absence of taxation and non-interference by the government in fixing of interest rates.
Bahrain, which is ranked 18th globally, is considered the GCC country to best adopt the values of economic freedom. It attained its ranking despite dropping five points in the past year.
On the other hand, the Emirates’ ranking improved by three points and it is ranked 25th globally as it moves forward with development in different fields like trade, services and aviation. Recently, it was reported that Dubai airport was ranked number one worldwide in 2014 in terms of the number of international passengers, overtaking London’s Heathrow airport.
Qatar is ranked 32nd globally. There is no doubt that Qatar’s ranking for economic freedom will change over time as it prepares to host the Fifa World Cup in 2022. At the end of the day, in order to develop the country’s infrastructure the private sector should play a greater role in trade and commerce.
The rankings of Bahrain, the UAE and Qatar are much better those of many European Union members like Belgium, Poland, Cyprus, Spain and Portugal, which is a matter of pride for the Gulf.
Regarding the performance of the rest of the GCC countries, Oman, which ranks 56th globally in the 2015 inded, dropped eight places since last year, which is the biggest decline for a Gulf economy.
However, it is possible that Oman’s ranking will improve as the government plans to limit the role of the public sector in economic affairs.
It is also expected that the Omani authorities will restructure subsidies for petroleum products that benefit both citizens and expatriates.
Kuwait, ranked 74th globally, climbed two places, seeing the second best improvement for a Gulf country after the UAE. Kuwait fell 10 places in the 2014 report, making it the worst among the Gulf countries in the index, but has improved its position this year.
Saudi Arabia kept its global ranking of 77 among the 178 economies included in the report. We can say that the researchers of this report have been unfair to Saudi Arabia since they did not highlight the vital role of its private sector in its local economy.
For example, Saudi dairy companies compete not only in the local market but also in other GCC markets, taking advantage of the common Gulf market that grants them the freedom to move their products in the six GCC states.
The report classifies Oman, Kuwait and Saudi Arabia among countries whose economies are moderately free. However, it does not take into account facts like the Gulf economies providing a big job market for expatriates at a time when many global economies are restricting foreign labour to protect jobs for the local workforce.
Finally, some countries accept the concept of reducing the role of the public sector in economic affairs while others don’t.
This idea is accepted by investors, in addition to those who believe in reducing the government’s role in the economy.
Some others think it necessary to find a middle path that serves the interests of the private as well as the public sector.
The author is an economist and researcher on GCC economies
