A lighter regulatory touch places the UAE and Jordan at the top of Arab states
22/11/2014 19:08 AST
The recently released 2014 report on 'Economic Freedom of the Arab World' is generous enough towards the Gulf Cooperation Council (GCC) states . for all the logical reasons.
The report ranks Jordan on par with the UAE at the top position, followed by Bahrain, Kuwait, Oman, Qatar, Lebanon and then Saudi Arabia. Of the 22 Arab League nations, 20 are ranked, ostensibly reflecting the availability of data.
The report is issued by the Friedrich Naumann Foundation for Liberty, International Research Foundation of Oman and Frazer Institute of Canada.
Much to its credit, the index relies on a sizeable number of variables - 42 in total that are in turn grouped into five broad areas of economic freedom.
The pillars are 1) size of the government in terms of expenditures, subsidies and investments; 2) the legal system and property rights with regard to the impartiality of the judicial system as well as enforcement of contracts; 3) sound money policies and taking into account inflationary threats and money supply growth; 4) freedom to trade internationally such as low tariffs plus limited or no capital control; and 5) regulation of the credit market and labour concerning hiring practices and minimum wage.
Not surprisingly, the report considers governmental involvement in the economy as something negative and leading to the dislocation of resources. When competing with private sector firms for business, public sector establishments could crowd out businesses.
This reflects broad concerns that the public sector gets such favours as not paying fees and taxes.
To be sure, the public sector is sizeable across the GCC, something detrimental to the notion of a free economy. Governmental spending in the GCC comprises between 30 to 40 per cent of gross domestic product (GDP), in turn deemed relatively high by international standards.
If any, steady oil prices for the period of 2011 through the first-half of 2014 saw a further strengthening of spending. Among other things, officials used the money to enhance the infrastructure and projects capable of creating jobs for locals.
Nevertheless, stronger public spending has not caused a rise in inflation rates, somehow hovering around 3 per cent over the past several years, which is clearly reasonable. This is partly the result of absence of imported inflationary threats.
In a departure from the experiments of 2007 and 2008, exporters of commodities to the GCC have largely avoided raising prices to compensate their economies despite firm oil prices for several years until quite recently.
Separately, the process of pegging GCC currencies to the US dollar undermines one principle of the economic pillar of sound money. The practice places an artificial value for the currency rather than allowing it to be determined by market forces.
Kuwait is an exception for linking the dinar to a basket of currencies including the dollar, euro and other hard currencies. Some sort of link to the dollar is understandable for being the currency used in pricing oil and other exporting goods such as petrochemicals.
Insights into the results suggest that the UAE's strengths entail limited business regulation and freedom to engage in international trade like the re-exports business from Dubai.
For its part, Bahrain receives a high mark on labour market regulations as a reward for enacting a law that grants immigrant workers the right to change sponsors under certain conditions. To be sure, immigrant workers continue to need to have local sponsors to work in Bahrain, but could elect to change the sponsor at expiry of the contact.
Other circumstances entail failure of the sponsor to provide compensation for several months in a row. Undeniably, the law is not popular with employers but serves the causes of sound justice and economic freedom
Gulf News
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