By Nurhidayahti Mohammad Miharja
Professor Jean-François Seznec, adjunct professor at the McDonough School of Business at Georgetown University and founding member of the Lafayette Group LLC, recently gave a talk on “Industrialization in the Gulf and its Impact on the Far East.” The full-house event, held at the Hilton Hotel on 4 June, was part of a series of talks given by Dr. Seznec organized by MEI. Other seminars included “Gulf Industrial Investments in the Far East and Far East Investments in the Gulf” and “Consequences of Nuclear Energy Developments in the Gulf: Risk and Opportunities for China.”
In this first seminar, Dr. Seznec outlined four Gulf government strategies in fostering industrialization: 1) developing in areas where they have a natural advantage; 2) obtaining the best technology; 3) controlling the industry financing; and 4) establishing large industrial centers. These strategies articulate a shared vision by the Gulf states to become major economic powers, primarily through expanding their base of oil and gas reserves. Given the depletion of non-renewable energy resources alongside the risk of price volatility, a greater emphasis has been placed on the downstream oil and gas sector across the region. As a result, Dr. Seznec noted numerous joint ventures with foreign partners, especially in Qatar, which indicate a trend toward economic diversification into related fields such as chemicals and fertilizer, as well as heavy industries such as steel and aluminum. Such fields need abundant cheap energy—easily available in the Gulf.
The choice of industrialization, according to Dr. Seznec, leaves the Gulf countries better placed for growth. For instance, Saudi Aramco currently maintains the largest oil production capacity in the world with 12.5 million b/d. In addition, large downstream chemicals joint ventures have been inked between PetroRabigh and Sumitomo as well as Sadara and Dow Chemicals. He further noted the widespread reach of Middle Eastern products “increasingly used in Far East production and, in turn, re-exported to other areas” and argued for the “need for more investments from the Far East in the Middle East in advanced technology.”
There remains, however, challenges such as the relatively high (40%) unemployment rate among youth in the Gulf. Instead of developing local knowledge and skills, industrialization in the region has relied heavily on foreign labor. For example, 95% of workers in Saudi Arabia’s private sector are foreign. This concern regarding a lack of local integration was highlighted by Drs. Peter Sluglett and Ali Kadri of MEI, who, in the talk’s question and answer period, described Gulf industrialization occurring as if removed from social changes in the local community.