The 2014 Index of Economic Freedom unveils mixed results for the Gulf states and not necessarily for reasons that are justified. The Heritage Foundation and the Wall Street Journal, known for embracing conservative ideologies and embracement of private sector initiatives, have brought out the authoritative report.
Of the six-nation grouping, only Saudi Arabia advanced by five notches to a global ranking of 77. Kuwait sustained the biggest drop, by 10 notches to 76th, ahead only of Saudi Arabia within the GCC.
Qatar and Oman experienced declines by three notches, mainly reflecting the steady involvement of the state in the economy. Bahrain lost a single position due to questionable practices.
The Index relies on performance of the economies on 10 variables concerning the level of freedom or lack of it. The variables are grouped into four categories, namely rule of law (property rights and freedom from corruption); regulatory efficiency (business, labour and monetary freedom); limited government (governmental spending and fiscal freedom); and open markets (trade, investment and financial freedom).
Clearly, the Index highlights matters like freedom of hiring and firing workers. Also, fiscal restraints like relatively high taxes are rates as undermining economic potential. Still, the report regards governmental involvement in business as detrimental for proper functioning of the economy and causing displacement of scare resources.
However, the Index relies on secondary data used prepared for other purposes in assigning grades for the 10 variables. Also, the gap in rankings assigned to Bahrain and for the UAE and Qatar is not necessarily acceptable, as the three share comparable positions on numerous variables used in the index.
Anyway, looking into performance of GCC states, Bahrain saw its ranking edge down a notch to the 13th spot. Nevertheless, this is the best performance by any country within the Middle East and North Africa region. Yet, the economy was in the 12th position in 2013 and 2012.
It is possible that the fall partly relates to corruption issues like that of purported payment of bribes in the commercial ties between Alcoa of the US and Alba of Bahrain. Recently, Alcoa settled in a court by paying the US government a hefty $384 million, in part due to the wrong practices with Alba. The government of Bahrain is majority owner of Alba.
Turning to other GCC countries, the UAE managed to maintain its ranking, 28th, on the back of sustained improvement in business freedom. What’s more, the UAE succeeded in overtaking Qatar as the second freest GCC and Arab economy.
Sadly, Qatar’s ranking experienced decline by three notches to 30th reflecting steady growth in governmental spending, a negative factor in the Index. Continuation of relatively strong expenditures relates to the government’s determination in preparing the country for World Cup 2022. By one account, Qatar could invest some $30 billion in 2014 on infrastructure projects.
Similarly, Oman saw its ranking decline three notches to 48th globally again due to notable fiscal spending. Ever since the socioeconomic unrest in early 2011, the authorities opted to strengthen state expenditures.
Undoubtedly, it is unfair to consider the Saudi economy as the least open among fellow GCC countries on the freedom index. The kingdom boasts a notable private sector, something on display during the annual pilgrimage to Makkah and Madinah.
Interestingly enough, the Index classifies GCC countries into two equal categories, namely Bahrain, the UAE and Qatar as mostly free. Still, Oman, Kuwait and Saudi Arabia are classified among moderately free economies, but this is still a subjective ranking.
The writer is a Member of Parliament in Bahrain.