GCC leads Arab World in economic freedom
The GCC countries are among those that are leading the Arab World in terms of economic freedom, with the UAE and Bahrain having been ranked second on the list, a new report has found.
The high ranking for the GCC countries is attributed to low barriers to international trade, low external tariff rates, and the absence of a personal income tax. However, the UAE and Bahrain slipped from their first place in last year's ranking, while Jordan took the top spot this year, according to Fraser Institute's latest 'Economic Freedom of the Arab World' report for 2019.
The UAE's score was 7.4, down from 7.5; while the score for size of government is down 0.1 points to 5.8, bringing it to 11th position. Its score for legal structure and security of property rights fell from 6.1 to 5.7, and the country ranked fourth for this area. Its score for sound money remained 9.5, putting the UAE in ninth place in the ranking. The UAE came in first place in freedom to trade, with a score of 8.5 compared to 8.6 last year. For regulation of credit, labor, and business, the UAE scored 7.5, down from 7.6, putting it in sixth place in the rankings.
The UAE and Bahrain were followed by Lebanon, Oman, Qatar, Palestinian Territories, Kuwait, Morocco, and Saudi Arabia. The bottom-ranked Arab countries are Syria, Libya, Sudan, Algeria, Egypt, Yemen, Iraq, Somalia, and Mauritania.
The UAE has launched a host of initiatives over the last year such as 100 per cent ownership in certain sectors, long-term visa, cutting down fees to do business, and the freezing of school fee hike, that have reflected positively on the rankings. Earlier this year, the Heritage Foundation had rated the UAE first in the GCC and as the ninth freest economy in its 2019 index. The foundation had suggested the need to upgrade the business climate, at least partial privatisation of state-owned enterprises, and improvement of the regulatory regimes governing the financial, real-estate, cyber, and free-trade zone sectors to enhance their appeal to foreign investors and visitors.
Tanja Porcnik, senior fellow of the Fraser Institute, said that a broader embrace of economic liberalism in the Gulf region would be a harbinger of the unleashed effort and creativity of the whole population, followed by powering of these nations into a new era of growth and prosperity.
"The Gulf countries particularly observe high scores for low barriers to international trade, which is reflected in their relatively low external tariff rates. Further, another positive observation from the report is that the UAE, Bahrain, Kuwait, Qatar, Oman and Saudi Arabia do not have a personal income tax," Porcnik said.
"Just like across the world, development in the Gulf region is dependent upon the rise of economic freedom for the whole population. To achieve this end, opportunities to engage in economic activity need to be open to all, while at the same time the excessive size of the state, high government consumption and overreaching state-owned enterprises need to be scaled back. With this, the Gulf countries will attract more foreign direct investment, lower investment risk and immerse itself deeper in the global value chains. For better or worse, the future is in their hands," she said.
On the other hand, the study noted that the role of the state in the economies through state-owned enterprises, as well as the welfare state, is sizable in the Gulf countries, which brings down their economic freedom scores.
Imran Farooq, CEO of Samana Group, says that GCC's economic reforms and economic freedom are making the region attractive for foreign investment and top talent.
"The dynamics of the world economy is currently re-shaping and re-aligning. Obviously, the GCC is part of this paradigm shift following the oil boom and bust, which is driving diversification and massive economic reforms to develop the non-oil economy. To continue growth, multi-million dollar projects, business attractiveness and preferred destination for international migrant talent, GCC governments have launched massive and liberal economic reforms," Farooq said.