Chapter 6: Globalizing Monarchies Morocco | Saudi Arabia | Conclusion | Table of Contents Most of the monarchies in the region are relics of British imperialism. As Colonial Secretary in 1921, for instance, Winston Churchill invented Jordan for the sake of one of the sons of the Sharif Hussein of Mecca. The father was owed favors for sponsoring T. E. Lawrence’s Arab Revolt in World War I against the Turks. Abdullah, the son in question, had been promised Iraq, but the British gave this plum instead to his younger and more cosmopolitan brother Faisal, whom the French had expelled from Syria in 1920. The British protected other ruling families, like the Sabahs of Kuwait, the Thanis of Qatar, and the Qabbous of Oman, and helped them assume the trappings of monarchy. Only Morocco’s ruling dynasty has roots in the precolonial past, while Saudi Arabia, defined by the conquests of its ruling family, only fully emerged as such in 1932—in time to balance off British subsidies against oil concessions to the Americans. With the exception of Morocco, the monarchies surviving independence enjoyed relatively superficial, positive colonial encounters, barely touched by nationalist movements. They consequently retain close business links with their old colonial mentors and new American advisors, and they also tend to encourage local private entrepreneurs. Unlike bunker or bully capitalist regimes, they rarely nationalize foreign or indigenous assets. Even the nationalizations of the American, British, and French oil companies came late, gradually, and reluctantly. In Bahrain and the United Arab Emirates the foreign companies retain minority shareholdings. In Saudi Arabia the Arabian American Oil Co. (ARAMCO), registered in Delaware, managed the national oil business until 1990 and still fields technical advisors.
Although private capitalists can be perceived as a threat to a secretive and unaccountable regime, they offer it strategic depth as well. An active private sector can help it attract the international and national capital needed to be more competitive in the global economy. In these monarchies the local business elites act as part of a big extended family, for the ruler retains the ability to alter the pecking orders of power, privilege, and wealth. There is no true distinction between public and private property. What a wealthy ruler gives away may be taken back; he may manipulate the private sector resources of his more or less vibrant civil society and the NGOs that formally reflect it. The semblance of civil society buffers political opposition and facilitates crafty strategies of economic development and globalization. It enables the monarchies to project more open business environments than those of the bunker or bully capitalist regimes. They remain wedded to the international order that founded them and facilitated their development.
Indeed, unlike the military regimes with their state enterprises, the monarchies and their principal businesses are already integrated into the global economy. They are consequently more exposed to potential populist backlashes against globalization. Since the structural power of local capital is greater, the rulers cannot bully it. They instead negotiate with their business notables so as to discourage them from making alliances with populist Islamists. Their economic strategies are more constrained by the interests of local capital, which may sometimes be expressed in civil society, than those of the bully or bunker regimes.
Within these parameters the monarchies display considerable variation. Morocco, with almost 30 million inhabitants, has about triple the indigenous population of Saudi Arabia, ten times Jordan’s, over 30 times Kuwait’s, and 300 times Qatar’s. Morocco’s ruling dynasty, the Alawis, achieved power and spiritual hegemony in 1666, centuries before the Saudis and the Hashemites of Jordan and Iraq. The monarchies vary not only with respect to their legitimacy and longevity but also in the degree of sophistication of their civil societies. Morocco, Kuwait, and Jordan have highly articulated party systems, more or less regular elections, and a relatively free press. Morocco and Jordan do not have the mineral wealth of Saudi Arabia or the other GCC states and perhaps compensate by according somewhat greater political freedom to their citizens. But Kuwait does not need to compensate. Its oil wealth supports social services at least as extensive as those of the other petrostates, but the shadow of Iraq has also influenced its politics since the 1930s. The Kuwaiti parliament has a unique if discontinuous history. The other rich monarchies of the GCC keep a tighter lid on their respective oppositions. Saudi Arabia finally acquired an appointed consultative council in the wake of the Gulf War.
Morocco and Saudi Arabia are not only the most populous and influential of the monarchies. They also mark extremes in the continua of longevity, wealth, and civil sophistication. In one respect Morocco is unique among Arab monarchies. It alone weathered a relatively intensive and protracted colonial situation without either, as in Tunisia, being superceded by a mass nationalist movement or, as in Egypt or Iraq, being overthrown by radical military officers. As already mentioned in Chapter 1, the French colonial authorities unintentionally transformed Mohammed V, their reclusive, protected sultan, into a national hero by exiling him and his family to Madagascar in 1953. His son, the late Hassan II (1929-1999), then repressed and subdued Morocco’s second and third-moment elites. After physically eliminating his most intransigent opponents in the 1960s, he coopted much of Morocco’s political class into a parliamentary system that reserves most significant powers for the monarch. Thus Morocco is not only the oldest but also the most experienced and effective of the Arab monarchies in coping with contemporary nationalist and Islamist oppositions. Jordan, by incorporating the West Bank and receiving hundreds of thousands of Palestinians expelled from Israel in 1948, is the only other surviving Arab monarchy facing comparable internal opposition. The Gulf Cooperation Council (GCC) states, of interest primarily for their oil, were not colonized extensively; western education came much later than to Iran, Iraq, and the Mediterranean states of the region. Consequently "the new middle class" is weaker: Saudi Arabia and the other GCC monarchies deal with less articulated civil societies and have less experience coping with organized oppositions than their northern neighbors. In a sense Morocco may be the "future" of Saudi Arabia as the latter modernizes and per capita oil revenues diminish. We therefore focus this chapter primarily on Morocco and only secondarily, despite its riches, on Saudi Arabia.
Morocco [top]
It is the king’s royal household, the makhzan, that dominates economic policy-making, not the official government. In precolonial times this makhzan or "magazine" stored the grain collected as taxes that the sultan then redistributed in hard times to favored tribes. It remains the central source of patronage in Moroccan politics. The French Protectorate preserved the venerable institution but deprived it of its ruling functions. With independence, however, the king acquired new authority and power, and consequently substantial properties as well. By the time Hassan II succeeded his father, in 1961, the royal household included some of the most fertile lands, purchased from departing settlers, and a variety of businesses. The monarchy also effected an alliance with rural notables so as to curb the political ambitions of urban nationalists. These notables came largely from the same families that France had mobilized against the nationalists. The monarchy consolidated its power by distributing ex-settler land and other benefits to these constituents and to their related military officers. Hassan completed his father’s work and confounded most political observers by surviving in power for 28 years rather than the six months they had predicted.
The Moroccanization of commerce promulgated in 1973, after two nearly successful coups against Hassan, offered the makhzan new sources of patronage. Senior administrators could then be shuffled off to the private sector, opening the way to government promotions for a new generation of king's men (Leveau 1985, 255) In the mid 1970s positions in ministries and public sector enterprises were the monarch’s principal resources used to balance off his political elites. While Moroccan phosphate rents pale in comparison to Gulf oil, Morocco enjoyed a modest boom until 1976, when phosphate prices collapsed. It then experienced fiscal deficits comparable to those now affecting the Gulf states with the collapse of oil prices. Its balance of payments deficits were far more serious, however, and Morocco was impelled into a series of agreements with the IMF to reduce government expenditures and curb credit. Royal opportunities to dispense patronage were consequently diminished. After 1983, freezes on government employment, tariff reductions and freer trade, the elimination of most price controls and some state trading monopolies, and various other measures of economic liberalization required by either the IMF or the World Bank tended to erode the makhzan’s traditional patronage resources. These were, after all, derived from the allocation of official posts and selective implementations of government regulations. The monarchy gained considerable legitimacy in 1975 by orchestrating the Green March to take over the former Spanish Sahara, but it still needed tangible as well as psychic resources to balance the political parties and elite factions and maintain political control. It gained them in the private sector.
In 1980 the makhzan acquired a major interest in the Omnium Nord Africain. This holding company, founded in 1934, exemplified "German" capitalism under the auspices of the French Protectorate. By gaining control and putting his son-in-law in charge of it (until, following his divorce, he was replaced in 1999 by Mourad Chérif, a rising star (L'Economiste no. 285, 19.6.97) who also heads the state phosphates monopoly, King Hassan gained a dominant position in private sector industry and finance in addition to being Morocco's leading landowner. The industrial conglomerate’s gross revenues account for over 5 per cent of Morocco’s GDP. The ONA acquired major stakes in Morocco’s leading commercial banks and thereby enabled the makhzan to dominate the economy indirectly behind the scenes. In other words, the king regained in the private sector the influence that policies of economic liberalization were progressively eroding in government and the public sector. He could ardently engage his country in globalization without risking any serious defections in the business community.
The commercial banking system serves as a principal instrument of control. As in the German model, a small number of Moroccan banks operate a tight oligopoly. Reinforced in 1976 by the imposition of credit ceilings, these banks selectively control credit allocation and can make or break most businesses. In 1987 ONA acquired a major stake in the Banque Commerciale Marocaine (BCM), the leading privately owned one, as well as in some of the other banks. Other Moroccan conglomerates close to the palace, the Kittani and Lamrani groups, controlled two of the remaining five privately owned banks. Consequently the king could promote further economic liberalization, including the lifting in 1991 of credit ceilings and formal controls on interest rates. Unlike the Tunisians or Egyptians, he could also afford to privatize Morocco’s two public sector banks, holding half of Morocco’s domestic deposits, without losing control over the allocation of credit and patronage. In 1995 Othman Benjelloun acquired a core stake in the Banque Marocaine du Commerce Extérieur (BMCE). Although internal management problems have delayed the privatization of the Banque du Crédit Populaire (BCP), the Moroccan banks have stayed in better shape – with fewer non-performing loans – than their Tunisian or Egyptian counterparts. Privatization poses neither the political nor technical problems experienced by the bully capitalists. The Moroccan owners and principal managers form a tight and exclusive circle, for the most part of Fassi origin like the Benjelloun family. Outsiders such as Miloud Chabbi, who had bid for control of the BMCE, are clearly unacceptable. Indeed Benjelloun’s winning offer was priced so high that he may have received special encouragement to join the select circle. (fn. The Ministry of Privatization even disqualified Chabbi from acquiring Shell’s downstream operations, though he has extensive investments in Tunisia and Egypt. Chabbi got his start as a building contractor for the US base in Kenitra, but his source of the major funds invested outside Morocco remains a mystery. A French bank delicately noted that his "payments of large sums in liquid cash¼ may be explained by the agricultural origins of the funds" cited by Nadia Salah, "Le groupe Chaabi: Un portrait difficile à cerner," Numéro 257. jeudi 5 décembre 1996.) Coordinated by the Groupement Professionelle des Banques Marocaines (GPRM), the banking system insures the loyalty of Morocco’s capitalist class.
Economic liberalization has resulted in ever greater concentrations of market power in the hands of the seven large banks. In the face of globalization the leaders have reinforced their presence in Europe, attracted more minority participation in their capital from major European and Japanese banking consortia, and taken over some of their weaker Moroccan sisters. Consequently the field for royal patronage has expanded rather than contracted. Privatization has offered it further scope. A politically reliable financial system enabled Morocco to privatize substantially more of its public enterprises from 1994 to 1997 than any other Arab state (see Table 3-3), even though its public sector was never as large as Tunisia’s or Egypt’s. Morocco’s "German" model, however, faces a major challenge. The Casablanca Stock Exchange, reinvigorated to facilitate the privatization efforts, offers an alternative source of financing for enterprises beholden to the banks. It also represents an alien Anglo-American variety of capitalism that insists upon the full public disclosure of the sorts of information that commercial banks deem to be confidential.
During King Hassan’s final years, however, the political system became sufficiently liberal to tolerate the required flows of information. The contrast with Tunisia could not be more striking. Four of Morocco’s 13 approved brokerage houses issue periodic bulletins analyzing not only the traded companies but their respective industries, market shares, and competitive strategies. Analysts fresh out of business school present case studies worthy of being taught in the classroom. Behind them, too, are a young generation of journalists specialized in economic affairs. L’Economiste fields some 30 investigative reporters and analysts. Founded in 1991 as a weekly to compete with a prestigious journal left over from the time of the Protectorate, this paper owned by a Moroccan political scientist and a prominent economic analyst is a sign of the times. It expanded to become a daily in 1998 and, supported in part by ONA and other prominent groups, generates sufficient revenues from publicity to finance its presence online and organize its archives on CD ROM. Such an enterprise, though specializing in economic affairs, could not flourish in an illiberal environment. It retains its credibility, in fact, by being staunchly independent. In 1996, for instance, it left its editorial page blank (Feb. 8, 1996) rather than toe the official line that all was going well with Interior Minister Basri's crackdown against corruption in the port of Casablanca. The crackdown was actually so clumsy and draconian that businesses stopped importing, but at least L'Economiste was not sanctioned for preserving its professional reputation within the business community. In July 1998 it broke a taboo when it reported news taken from a brokerage firm's information sheet that DGAS (Direction Générale des Affaires Sociales of the Royal Armed Forces), which manages officers' pension funds, had taken a major position in a rather poorly performing bank stock. Normally, as in praetorian republics, no civil, political or economic action of the military is open to independent reporting.
King Mohammed VI inherits a monarchy that may appear on the verge of becoming genuinely constitutional. King Hassan handed most economic decision-making over in 1998 to a government headed by a leader of Morocco's once radical secular opposition. The makhzan retains control over foreign affairs, defense, internal security, and religious affairs, but an alliance of seven opposition parties holds the rest of the ministries. The young king has much less rapport with the military than his father, who as Crown Prince had served as chief of staff, or than young King Abdullah of Jordan with his officers, for that matter. He may prefer a more constitutional, less politically engaged role than his father. His role model is the king of Spain who defended and reigned over the transition from Franco's authoritarian regime to constitutional democracy. It is not obvious, however, that the new king will be able to play his father's complex game of "coded signals" (Tozy 1999: 74) that implied a national pact permitting the opposition to share power. Any Moroccan transition is fraught with peril. Elections in Morocco have never been fair and free, and the constitution gives the king ample room for maneuver against the parliament, part of which he appoints. An Islamist opposition waits in the wings for the current government to fail to deliver adequate economic growth, employment, or social services. Military officers may also be waiting in the wings to "protect" their monarch, should he try to divest his makhzan of more royal prerogatives and power.
Morocco's traditional political parties have been weakened over the years by cooptation and collusion with the monarchy. King Hassan gave his coalition government of "opposition" parties headed by Prime Minister Abderahman Youssoufi of the Union Socialiste des Forces Populaires (USFP) full responsibility for economic policies, so that his royal cabinet has relaxed its supervision of the ministries. Like similar experiments in the past (such as the Abdallah Ibrahim government of 1958-1960), however, the Youssoufi government is weak and divided, with limited means to carry out economic reforms. It must contend with the trade unions, which compete for attention, as well as the General Confederation of Moroccan Entrepreneurs (CGEM) and the powerful oligopolies behind it. Critics accuse the USFP ministers of carrying out the very programs of the IMF and the World Bank that they had criticized earlier, in opposition. The economic challenges remain daunting. Although poverty may be diminishing, 13 per cent of the population lived below the official poverty line in 1991. 63<NOBR> per cent of the rural population is without water, 87 per cent without electricity, 93 per cent without proper sanitation, and 67 per cent illiterate, with 54 per cent of the male children and 73 per cent of the females not attending school (Vie économique, 15 Jan 1999, cited by Zakya Daoud, "L'alternance à l'épreuve des faits," Le Monde diplomatique, April 1999, p. 29). Unemployment may average about 23 per cent and is greatest among the young, including some 100,000 secondary school and university graduates. The World Bank estimates that it will worsen unless Morocco radically increases its growth rates, up to at least 6 or 7 per cent from the current average of less than 4 per cent. To this end the government is expected to keep its budget deficits low, to woo foreign direct investment, and to accelerate privatization of public sector enterprises, which still in 1997 accounted for 20 per cent of Morocco's GDP. The spectacle of traditionally leftist politicians carrying out Washington Consensus reforms further weakens their parties while strengthening various Islamist organizations. Significantly the ministry of habous (religious foundations) is among those reserved, along with the Interior, Foreign Affairs, and Justice, for royal appointees.
Ironically a thorough application of structural reforms could also undermine the makhzan's economic domination. The Casablanca Stock Exchange already features a minority of brokerage houses and investment banks that are independent of the commercial banks and can offer alternative sources of financing for medium to large firms. The traditional banks will also face growing competition from foreign banks as liberalization proceeds. While the holding companies close to the palace will doubtless survive growing European and Asian competition, many firms may fail despite the efforts of the European Commission and the Moroccan government to stimulate their "mise à niveau" or upgrading to face the competition. Efforts across all of North Africa have been inadequate, and massive bankruptcies loom on the horizon despite government efforts to encourage commercial lending to small and medium enterprises. The makhzan's oligopolies may continue to grow and become more concentrated, but in an ever more constricted and vulnerable domestic marketplace.
Morocco retains a civil society that seems better articulated than those of its praetorian counterparts and more effective in absorbing Islamist organizations. Morocco, for instance, sent many more NGO representatives to the Beijing Women's Congress in 1995 than the Algerians or Tunisians (although Ben Ali also carefully uses women's NGOs for his political purposes). While the opposition parties have weakened, networks of non-government organizations have emerged, carefully encouraged, orchestrated and sustained by policies of political decentralization and by economic forces close to the palace. Some Islamist cultural associations have been encouraged, along with a tame political party which has won 10 seats in parliament. King Hassan was better able to divide and dominate his Islamists than Husni Mubarak, Ben Ali, or the faceless Algerian décideurs. As "Commander of the Faithful," he actively dominated field of religious discourse ever since his rise to power in the 1960s. One measure of his success is the virtual elimination of alternative discourses. An unfortunate consequence is that Islamic innovations remain outlawed that might further divide and encourage moderate Islamist oppositions.
Islamic finance, in particular, was rejected in Morocco because it carries the implication that current financial practices are not in compliance with Islam and therefore that the Commander of the Faithful is neglecting his duty. In fact a relative of the king was appointed after independence to be the central bank's first governor, a position he held for over two decades. Islamic banking found a warmer reception in post-revolutionary Algeria than in the conservative kingdom. Under Chadly the Algerians permitted the transnational al-Baraka group to establish a joint venture with one of their public sector banks and subsequently, after 1992, other private sector Islamic banks received their permissions. In Morocco, by contrast, the closest al-Baraka has come to the financial sector is in the peripheral field of leasing. Since there is no official Islamic banking sector, King Mohammed VI is deprived of a useful instrument for engineering a Spanish Succession. The makhzan has little ability to control, monitor, or encourage any Islamic economic sector that might coopt and tame the emerging Islamist youth and university students. This opposition may amplify any economic failures even as policy-makers hesitate to accelerate structural reform for fear of Islamist backlashes.
Were Islamists more involved in the country's economic reforms, they could conceivably help to bridge the growing gap between young, largely unemployed generations and aging political leaderships and support economic liberalization as an Islamic initiative. Morocco offers the pluralistic space and economic opening for such a dialectic, were it compatible with the new monarch's conception of commanding the faithful. As Rémy Leveau observes, King Hassan consistently opposed "a coalition bringing together young unemployed graduates, ideologists producing a discourse on Islamic modernity, and new currents of the liberal bourgeoisie, [for] it could offer a credible alternative if the present [governing] coalition experiences difficulties." (Rémy Leveau, " Réussir la transition démocratique au Maroc," Le Monde Diplomatique, April 1999, p. 14-15.) His son may have different ideas.
Saudi Arabia [top]
Saudi Arabia has neither the elaborate infrastructure of parties and associations nor even the degree of ethnic and regional pluralism that favors the role of a patrimonial arbitrator in Morocco. Saudi politics are less transparent than Morocco's and hardly in need of an oligopolistic, German-style capitalism to cover the ruling family's pervasive influence. While less organized than the Moroccan makhzan, the king (and Crown Prince Abdullah since Fahd's illnesses) probably exercises more direct influence on the economy, on such matters as oil prices and OPEC quotas as well as privatization and other economic reforms, than King Hassan ever did. A recent Saudi decision to limit ministerial tenure to four years insures a periodic renewal of the government which probably strengthens the hand of the monarch over his ministers. The Higher Economic Council, established in 19999 under the chairmanship of Crown Prince Abdullah, appears to have executive powers (MEED 10 September 1999, p. 26). It includes a consultative committee of ten private sector representatives as well as the key economic ministers and the governor of the central bank.
Without much fanfare the kingdom has partially adapted to the new economic realities of lower oil prices. After incurring budget deficits from 1984 to 1993 annually averaging over 17 per cent of GDP, the government reduced it to 1.1 per cent in 1997 and, after sharp oil price declines in 1998 followed by a recovery in 1999, to about 3 per cent in 1999 (MEED 3 September 1999, p. 2). A Saudi economist could justifiably claim "a degree of resiliency by the Saudi state that was much greater than could be expected for rentier states." (Krimly 1999: 267) On the revenue side the Saudis reached an understanding with Iran and other major producers that restricted production to increase oil prices. Non oil revenues also increased slightly as subsidies were reduced for oil products, electricity, water, telephone services. On the expenditures side cuts in wheat subsidies led to a dramatic and salutary reduction of wheat production and further paring away of the subsidies. The most significant cuts were defense expenditures, notably after 1993, but investments in productive infrastructure were also reduced. Fiscal prudence perhaps also helped the Saudi Monetary Authority prevent a run on the riyal in the spring of 1998, when oil prices plummeted. Despite the expenditure cuts, however, spending on "human development" - education and health - steadily increased in the 1980s and 1990s. For Saudi Arabia, despite its oil wealth, faces the same problem that Morocco and other MENA countries confront, namely, the specter of legions of unemployed graduates. A Ministry of Planning study estimated a male unemployment rate of 46 per cent in 1990 (Chaudhry 1997: 297). Spending on human development employs some of them and perhaps in time produces graduates more suited to employment in the private sector.
Saudi Arabia has accumulated a heavy debt burden from financing chronic budgetary deficits since the mid-1980s. Apart from some borrowings on its behalf by Saudi Aramco and the Saudi Arabia Basic Industries Corporation (SABIC), the kingdom shied away from international creditors in favor of local borrowing. Domestic debt, however, rose after the 1998 oil price collapse to over 100 per cent of GDP (MEED 11 June 1999, p 7). Roughly one-third of it is owed directly by the government, but the private financing of the government's "contractor bonds" further squeezes financial markets. Reformers appointed to the Economic Higher Council are therefore attempting to make the Saudi Stock Exchange more attractive, especially to Gulf nationals, who are estimated to own some $500 billion of relatively liquid assets abroad. Despite the stock market's high capitalization, turnover, as was noted in chapter 3, remains low, with relatively few companies listed and limited prospects for new listings. Foreign investors are only permitted to invest in a single fund.
Saudi Arabia seems less in need of foreign direct and portfolio investment than Morocco, however, to stimulate economic growth and expansion of the labor force. The Saudis already attract joint ventures in the petroleum and petrochemical industries and seem in need of structural adjustment mainly to attract local Saudi capital to generate new employment opportunities. Much Saudi enterprise used to be financed by the state, which cycled the petroleum revenues to specialized lending agencies. Though these public funds have not been replenished, the specialized agencies continue to make loans with payments from past borrowers. Current lending collectively amounts to almost half the total credit allocated by the Saudi banking system to the private sector (SAMA 1998: 82, 114). A more market-driven form of credit allocation might expand employment opportunities by opening credit lines based on expected cash flows rather than family connections. As Fandy (1999: 246) observes, much of the oil revenues have tended to benefit prominent old families and thus reinforce the family-kinship system. Chaudhry (1997: 161-162, 170-172) notes that the loans went disproportionately to prominent Najdi families but that Saudi strategies may be changing in favor of alternative business elites (pp. 298-299). The monarch clearly retains vast patronage at his disposal, even after some of the oil revenues, and perhaps some of the oil as well, is distributed among family members.
Prince Abdullah is reputed to be a more careful manager of state funds than his half-brother Fahd or the latter's full brother, Defense Minister Sultan (who is also a member of the Economic Higher Council). He may reduce some of the family corruption in the same quiet and gradual way whereby wheat subsidies were reduced. In time, too, the funds allocated by the specialized lending agencies may dry up, leading to a more competitive climate for investment. Meanwhile, however, the priority given to "human development" is to train Saudis to replace at least the half of the country's expatriate labor force of 4.5 million that is not engaged in personal or household services. In 1994 the Saudi labor force totaled 2 to 2.4 million, 1 million of whom were employed by the government. Although Saudi expenditures are not as constrained as Morocco's, neither country can afford to further inflate its bureaucracy. Any new jobs must come from the private sector, which, with only a 20 per cent "Saudization" rate, is overwhelmingly staffed by expatriates. Private enterprises are reluctant to hire Saudis. A frequent complaint is their "'mudir syndrome' - the peculiar concept of honor in employment which dictates that nothing less than a position of authority, status, and respect is acceptable." (Champion pp. 6-7) Universities have tended to expand religious studies at the expense of disciplines more suited to the needs of the private sector. Current efforts to restructure the educational system by channeling Saudis away from the universities into technical training institutes seem unlikely to achieve greater success than comparable Egyptian restructuring efforts in the 1960s. Saudi TV programs try to promote technical jobs and trades to the youth. "Cleverly, whilst actually aiming to ease young Saudis out of the 'mudir syndrome,' the television programs tend to emphasize the supervisory role in factories." (Champion, p. 7)
Since the early 1980s the kingdom has been attempting "Saudization" with little impact, to date, on private sector recruitment preferences. Favored private entrepreneurs limit government intervention, and too much administrative pressure might dry up businesses or send them offshore to Bahrain or further afield. Meanwhile Islamist oppositions have grown more visible if not necessarily more menacing or effective. An important base has been the Saudi educational system, notably its burgeoning religious faculties. In the mid 1990s the opposition Committee for the Defense of Legitimate Rights, a moderate group based in London advocating a shake-up within the royal family rather than its elimination, estimated that some three hundred political prisoners languished in Saudi jails -- far fewer than in other Arab countries of similar population size, such as Tunisia. In Saudi Arabia some of Islamist opposition took more violent forms, however. Saudi dissidents seem to have been primarily for car bomb explosions in Riyad and in El-Khobar which were aimed primarily at American military installations and personnel.
Since Saudi Arabia has neither political parties nor many other recognized forms of association, it may be more difficult than in Morocco to tame Islamist opposition forces and bring them selectively into government. After the kingdom's traditional laissez-faire approach to Islamist opposition movements elsewhere in the Arab and Muslim worlds, it tightened up and threatened in the early 1990s to discipline Saudi contributors. Osama Bin Laden, for instance, lost his Saudi citizenship. But Islam remains the regime's prime source of legitimacy, incarnated by a conservative religious establishment. Just as the Al-Saud joined forces with Mohammed Ibn Abdul Wahhab in the mid-eighteenth century to found the original dynasty, so Abdul Wahhab's descendents of the Al-Shaikh family usually occupy ministries -- currently as many as three under Crown Prince Abdullah. The official Islamic establishment perhaps limits the kingdom's political options in dealing with the anti-estabishment Islamists.
King Fahd, for instance, was almost as reluctant as King Hassan of Morocco to grant any licenses to Islamic banks. The one exception, Al-Rajhi, was originally an exchange dealer. Its branch network was too big for the firm not to be licensed when -- as the result of the collapse of a smaller dealer in the Rajhi family -- exchange dealers were forbidden from taking deposits or making loans. Rajhi shrewdly insisted on becoming an "Islamic" bank, although the official legislation accepted by the religious authorities considered all Saudi banks to be operating on Islamic principles. Al-Rajhi Banking and Investment Corporation routinely posts the highest returns on assets of any Saudi bank and has gradually gained in market share since its founding in 1988. Despite repeated efforts, however, neither the Faisal nor Al-Baraka transnational group of Islamic banks has received permission to open commercial banking operations inside Saudi Arabia. The former group is headed by Prince Mohammed Al-Faisal, son of the late King Faisal, and the latter by a self-made Saudi businessman, Shaikh Saleh Al-Kamel, whose holding company is based in Jiddah. Although most conservative religious scholars reject interest, the Saudi establishment not only accepts it but prevents the presence of these transnational alternatives to interest-based banking inside the kingdom.
Possibly pressures from other commercial banks, rather than legal concerns of conservative religious scholars or worries in the family about the kingdom's legitimacy, may explain the paradox of discouraging Islamic financial institutions in an avowedly Islamic state. Certainly more Islamic banking would cut into the markets and profits of prominent families with stakes in interest-based banking. But another reason may be one of political strategy. It maybe more opportune for the monarchy not to encourage an officially Islamist coalition of merchants and bankers within the regime as it might acquire some of the functions of a political party, including an appetite for power. Just as King Hassan was determined to prevent the building of such a coalition in Morocco, the Saudis may also calculate that its emergence would limit their ability to divide and rule their business establishment.
Islamic finance, however, carries more weight in the GCC countries than in Morocco. Bahrain, Saudi Arabia's offshore banking center until 1983, is rapidly becoming Islam's regional financial center. At least 16 Islamic banks and other financial institutions have operating licenses from the Bahrain Monetary Agency (MEED 20 August 1999, p. 4). The oldest, the Bahrain Islamic Bank, has operated in the local market for two decades and was joined in the mid 1980s by Masraf Faisal al-Islami, established as the regional headquarters for the Faisal group, and by Albaraka Islamic Investment Bank, representing Islamic finance's other major transnational. Recent arrivals include investment banks and Islamic subsidiaries of large conventional banks.
Even more significant may be the public support Islamic banking and finance receives in Kuwait. Technically the Kuwait Finance House (KFH) is not a bank at all, since it is regulated by the Commerce ministry, not the Central Bank of Kuwait. However, it is in fact among the largest and oldest of Islamic commercial banks in the region, second only to Saudi Arabia's Al-Rajhi in total assets, and it performs retail as well other functions, serving notably as the repository for the salaries of employees of various government agencies. It is Kuwait's third largest in total deposits, and it enjoys strong political support among Islamists. In 1999 the Central Bank of Kuwait drafted a law for Islamic banking that was intended to integrate the KFH and any other Islamic "bank" seeking "investment" (deposits) from the public with the other commercial banks. The KFH argued, however, that some of the draft provisions would force it out of business. A Kuwaiti consultant sympathetic to the bank observed that "KFH has the backing of the National Assembly." (MEED, 5 March 1999, p. 10) In Kuwait's relatively pluralistic system Islamist politicians and financiers apparently join hands, whereas similar displays of solidarity in any praetorian regime would doom the bankers.
Judging from the periodic rumors that the Faisal and Al-Baraka groups are about to receive licenses, the royal family seems divided over a political and economic strategy. A stronger Islamic banking presence would presumably be at least as much at the expense of the other conventional banks as Al-Rajhi. But possibly the Islamist challengers would most aversely affect the interests of Prince Walid al-Talal, who has recently propelled a major Saudi bank merger and has an interest in two of the leading conventional banks. Since he has already purchased independent media in order publicly to compete with those of more senior, established members of the royal family, they may wish to retaliate.
For the time being Islamic finance, like its conventional equivalents, is principally a vehicle for investing private fortunes abroad in "Islamic" mutual funds. Dow Jones has set up an Islamic index as a benchmark for Islamic investors. The index excludes firms dealing with pork or alcohol and also excludes firms which have conventional interest-based debt in excess of one-third of their total assets (MEED 10 September 1999, p. 15). Additional economic reforms are needed if much of the private wealth is ever to be reinvested back into the region. Islamic banks are in fact in greater need of such reform, if they are to invest in the region, than conventional banks. They are currently at a disadvantage because they are not permitted to invest their funds in many ways open to conventional, though they may enjoy a competitive edge in their ability to attract deposits. At present the bulk of Islamic financing takes the form of leasing, installment sales, or simple deferred payment sales. Expansion of Islam's distinctive equity-like financing presupposes more transparency, accountability, and regulatory authority than any Middle Eastern business environment yet promises. As two leading authorities on Islamic banking explain,
If, in addition to risks of the investment projects, the investor has to be concerned with the credibility of government policies, or arbitrary government decisions or distortions that threaten long-term price stability in the economy, he/she would be reluctant to invest in contracts that do not provide fixed nominal payoffs. (Iqbal and Mirakhor 1999, p. ) In other words, in unreformed business environments investors will prefer interest-bearing bonds or loans over Islamic financial instruments.
The development of stock markets and implementing the other guidelines of the Washington Consensus would make Islamic finance a more viable option. As Saudi Arabia surmounts its current succession crisis -- with Crown Prince Abdullah augmenting King Fahd's authority and recruiting a younger generation of princes -- a Kuwaiti style of pluralism may be on the horizon to facilitate such developments. Saudi Arabia presents a style of capitalism that already resembles the Anglo-American variety in important respects. An articulate Islamist business community reflected in leading Islamic banks could further promote a more competitive and transparent economy. If it remains offshore, gaining strength in Kuwait, Bahrain, and Qatar, it will also continue to attract Saudi capital.
Conclusion [top]
Most of the monarchies permit a greater degree of political and economic competition than the praetorian republics. Their long-term prospects may depend, however, on an ability to absorb Islamist opposition movements into their political mainstreams. This process has proceeded further in Jordan and Kuwait than in Morocco or Saudi Arabia. Each of the smaller countries displays a wide spectrum of Islamists with varying degrees of loyalty to their respective monarchies. In Jordan the Muslim Brotherhood, tolerated in the 1950s and 1960s as a counterweight to Gamal Abdul Nasser, developed especially close ties with the political establishment. Among the GCC countries Kuwait displays the greatest degree of both political and economic competition. Its elected parliament is hardly docile. The Ninth National Assembly, elected on July 3, 1999, contains only ten pro-government deputies out of 50 and is clearly outnumbered by 13 Sunni Islamist and 13 Liberal opposition deputies. Although divided on various issues, the Islamists still have significant leverage on economic issues. As noted earlier, their predecessors in the Eighth National Assembly mobilized parliamentary support for legislation favorable to Islamic banking.
Kuwait also has among the most active stock markets in the Middle East (see Table 3-8) and a relatively concentrated but apparently competitive commercial banking system (fn: Kuwait has 7 commercial banks. While the National Bank of Kuwait alone has about 30 per cent of the deposits, the top four have only 70 per cent, leaving a substantial market for the remainder of banks. The balance sheets of all but one look healthy. The top three score higher returns on their assets than the others, suggesting that some market power might be at work. However, two of the three with the smallest shares of the market earn better than 1 per cent on their assets, seem well capitalized, and make returns on equity of 7 to 10 per cent. The system does not appear to be exercising monopoly power upon its clients: the "spreads," or difference between what a bank charges a customer for a loan and what it paid out in interest to depositors, are consistently low, having never exceeded 2 per cent in the past decade). Although the Kuwait Finance House is presently Kuwait's sole Islamic commercial bank, an Islamic banking law that further integrates it into the commercial banking system will also encourage other Islamic financial institutions to join. Kuwait already hosts powerful Islamic investment banks that have funded Islamic commercial banks in Bahrain and elsewhere in the Arab world. Jordan, too, is host to Islamic as well as conventional commercial banks. The Jordan Islamic Bank for Finance and Investment, partly owned by the Dallah Al-Baraka Holding Company, attracts close to 10 per cent of the deposits of Jordan's private sector. To capture some of this market, the Arab Bank established a separate Islamic bank in 1998. Founded in Palestine in 1930, the Arab Bank is the most respected and one of the largest of banks in the Arab world, and its new venture seems also to be testimony to the rising tide of Islamic banking in Kuwait, Bahrain, and Qatar. It is not known whether the Jordanian Islamic banks are as closely linked to Islamist politicians as their Kuwaiti counterparts, but Jordan may, like Kuwait, offer sufficient politial and economic space for coalitions to develop. These smaller monarchies may be the bellwethers, respectively, for Morocco and Saudi Arabia.
Such coalitions between the Islamic financiers and the Islamist politicians may become necessary if the larger monarchies are to survive. They offer kings and governments greater strategic depth and margin for maneuver. Not only can Islamic finance moderate Islamist political oppositions, by giving them stakes in the economic system, but it can also legitimate government efforts to reform their respective economies. Islamic finance has the potential to transform the ostrich-like second moment rejecting globalization into an Islamization of the Washington Consensus. The political cost to the monarchies, however, may be new Islamic institutions that render their political economies more transparent and their governments more accountable than the passing generation of monarchs would have ever accepted. [top]
Last updated 2 January 2000 | Globalization seminar | Table of Contents
Department of Government, College of Liberal Arts, University of Texas at Austin.
Questions, Comments, and Suggestions to chenry@gov.utexas.edu