Last week's dramatically-launched anti-corruption drive in Saudi Arabia has left people in shock. But such big surprises are becoming regular fare as Crown Prince Muhammed Bin Salman and the country's government steadfastly pushes forward with the Vision 2030. What should we expect next?
Technically, we shouldn't have been surprised by the government's crackdown, since it has actually taken the time to telegraph its intentions in plain English (and Arabic) in its Vision 2030 document, published in April 2016. Anti-corruption measures fall under the theme of "An Ambitious Nation Effectively Governed," wherein we find the goal of "embracing transparency." The opening sentence reads: "We shall have zero tolerance for all levels of corruption, whether administrative or financial."
However, the opening broadside on November 4 still leaves a lot of work before those overseeing the Vision can check this goal off their to-do list. Among the remaining steps are the adoption of "leading international standards and administrative practices," and upholding "high standards of accountability." The ultimate goal is "the highest levels of transparency and governance in all sectors."
These steps should be music to the ears of prospective investors at home and abroad. The world’s leading index of economic freedom, produced by the Heritage Foundation, contains a section on the rule of law, which is the most important indicator from the perspective of foreign capitalists. In 2017, Saudi Arabia scored 47% on the “government integrity” sub-indicator, compared to a world average of 40%. The accompanying report remarked: “Despite some earlier moves to hold certain officials accountable, corruption remains a significant problem, and there is low transparency in the functioning of government as well as opacity about state budgets and financial practices.”
Those looking for an explanation for the crackdown should take the time to consider the economic factors, rather than fixating on the political angle. Saudi Arabia needs foreign capital, and its capacity to attract it has been damaged by tightening capital markets and hawkish central bankers in both the USA and Europe.
Saudi Arabia's government has wisely surmised that systematic reforms are required to its economy in order to attract outside investors, and has not shied away from fundamental reforms and sweeping measures such as the new anti-corruption drive. At the same time, such an initiative sends a clear message to Saudi citizens working in or with the public sector that malfeasance will no longer be tolerable.
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So what comes next? A scientific paper authored by Danish-based economists Thomas Barnebeck Andersen, Jeanet Bentzen, Carl-Johan Dalgraad, and Pablo Selaya, published in the 2011 World Bank Economic Review, argues that transforming government services to electronic form is an effective anti-corruption measure, for three reasons.
First, e-services reduce the distance between government and citizens, and in some cases eliminate the need for human intermediaries such as civil servants. This helps diminish the possibility of corrupt interventions by those intermediaries. For example, when a driver's license is granted by a human agent, this affords that agent the opportunity to receive bribes in exchange for the basic service itself, or even for illicit variants, such as granting a licence to an underage driver. By contrast, when a licence is issued by a computer, ensuring adherence to rules and regulations is more straightforward.
Second, electronic services require standardised rules and procedures, which further reduces the possibility of a civil servant deploying his or her discretion against the public’s interest. In the case of the driver’s licence, linking it to the population database makes it easier to strictly enforce the minimum-age requirement for applicants.
Third, electronic services can be monitored in a more transparent fashion than paper or face-to-face transactions, helping dissuade civil servants and politicians from corrupt practices. Correctly-structured security protocols make it much harder for the electronic analogue of “losing a receipt” or “misplacing an application form” to occur.
In a World Bank blog on how to combat corruption, Augusto Lopez-Carlos discussed Andersen et al’s paper, and explained how Chile had produced an exemplary public procurement system by exploiting the advantages of electronic services. Launched in 2003, the system has been a model of transparency, and by 2012, Chileans had used it to perform 2.1 million purchases valued at over $9 billion. In a region typified by high levels of government corruption, Chile’s strategy has helped deliver enviable levels of prosperity to its citizens, and is a key reason why its Heritage government integrity score is 71%, 22nd in the world.
As Saudi Arabia moves on to the next step in its own anti-corruption campaign, it would surely benefit from studying the Chilean experience. While many government services have already been transformed into electronic form, such as passport renewal, casual conversations with Saudi citizens suggest that the current public procurement system offers plenty of malfeasance opportunities to unscrupulous actors.
Governments have been reforming themselves for centuries, and economic crises are often the catalyst. There is no question that Saudi Arabia is facing a grave economic threat at present; and like its Chinese counterpart, the Saudi government has correctly surmised that tackling corruption is a critical reform. Xi Jinping’s crackdown has earned China a 6-point increase in its Heritage government integrity score; investors will be keenly watching to see what the 2018 report says about Saudi Arabia.
Omar Al-Ubaydli is a researcher at Derasat, Bahrain. We welcome economics questions from our readers via email (omar@omar.ec) or tweet (@omareconomics).
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THE BIO
Favourite book: ‘Purpose Driven Life’ by Rick Warren
Favourite travel destination: Switzerland
Hobbies: Travelling and following motivational speeches and speakers
Favourite place in UAE: Dubai Museum
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
PROFILE OF HALAN
Started: November 2017
Founders: Mounir Nakhla, Ahmed Mohsen and Mohamed Aboulnaga
Based: Cairo, Egypt
Sector: transport and logistics
Size: 150 employees
Investment: approximately $8 million
Investors include: Singapore’s Battery Road Digital Holdings, Egypt’s Algebra Ventures, Uber co-founder and former CTO Oscar Salazar
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
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THE BIO: Martin Van Almsick
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Family: Wife Hanan Ahmed and their three children, Marrah (23), Tibijan (19), Amon (13)
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Breakfast routine: a tall glass of camel milk
THE NEW BATCH'S FOCUS SECTORS
AiFlux – renewables, oil and gas
DevisionX – manufacturing
Event Gates – security and manufacturing
Farmdar – agriculture
Farmin – smart cities
Greener Crop – agriculture
Ipera.ai – space digitisation
Lune Technologies – fibre-optics
Monak – delivery
NutzenTech – environment
Nybl – machine learning
Occicor – shelf management
Olymon Solutions – smart automation
Pivony – user-generated data
PowerDev – energy big data
Sav – finance
Searover – renewables
Swftbox – delivery
Trade Capital Partners – FinTech
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Workfam – employee engagement
