Chairman of the Talal Abu-Ghazaleh Organization (TAGorg), Mr. Talal Abu-Ghazaleh, stressed in an interview with Al-Sharq that the services trade is the key to Arab economic integration, and that the disengagement of the Gulf countries from the US dollar is an economic decision and not a political one, while highlighting the significance of benefiting from the oil surge that the region is currently experiencing. Below is the text of the interview.
It is known that the services trade represents the nerve of global commercial transactions, yet the Arab world still lags in this field. What are your comments on this?
We in the Arab world need bilateral cooperation in the field of services trade. We also need to form an Arab alliance for the services trade that includes all sectors, which are 154 sectors that include communications, banking, tourism, etc. The services trade represents 80% of countries’ national income. In numerous nations, services generate five times the amount of income in comparison with industry; therefore they are a tool of economic growth.
The tasks of this Arab alliance for the services trade would focus on three main axes that represent growth of the services sector in the Arab countries, support of bilateral trade and support of the governmental negotiator when it comes to negotiations relating to services liberalization in the World Trade Organization (WTO).
Can Arab states achieve integration in the sector of services trade, especially since their economic structures are similar?
Services do not have similar products, but if they did exist, this would be a positive and beneficial thing because it would push companies towards integration. Arab countries are able to achieve integration in the field of services, especially since they all have a common language, which is a major factor in the process of bilateral trade in this sector. The services sector is the one that uses information technology the most, since transactions can be supported electronically and in an expedient fashion.
How can we talk about electronic transactions in the Arab world with the existence of 100 million illiterate people within it?
This is true, yet we are talking about support and growth of e-commerce in the Arab world. So e-commerce isn’t only of interest to individuals but also to companies, and so most Arab companies can jump directly into bilateral e-commerce. As for the relations of individuals amongst each other, their overall weight or impact in trade is considered very weak. Therefore, the illiteracy rate doesn’t really affect bilateral e-commerce.
I would add that we are talking about a sector whose natural movement is in the electronic realm. So there is nothing for example that would prevent the sale of an insurance policy online in the Arab world, and this is what indeed is taking place. But there is a lot ahead of us to grow this sector, especially if we consider that through supporting trade transactions in the services sector we can increase the percentage of bilateral trade to 50% of overall trade instead of the current 10% in the Arab world.
What about information security and how it can be addressed?
As in life, you cannot totally ensure protection from sudden accidents. The same applies to the electronic world, as there are various levels of security and the highest level is only granted by the US government to itself, but transactions conducted electronically can be secured.
On numerous occasions, we hear that Arab nations seek to develop electronic trade in order propel their economies and integrate in the world of knowledge-based economy. What is the impact of this trade in the structure of the gross product?
There are many problems worth studying and presenting expedient solutions for, such as the Arab electronic portal. This is a project that has been talked about for a while to propel e-commerce forward and is moving forward slowly.
I call on Arab nations to liberalize the services trade because it is the key to economic, political and social integration in Arab countries.
Companies’ “governance” is the key to development of institutions, and Arab nations are still taking their first steps here. What are your comments on this?
The issue of governance is very important and is a trend that has become codified in numerous Arab states as various laws impose a certain level of transparency. This is tied into the other aspect of governance and social responsibility of companies and the development of companies’ role for societies. So it is not enough to have good administration and transparent financial statements for companies, but the issue goes on to the objectives behind that. In my view, the goal represents serving the citizen and community and we at TAGorg support ISO 26000 on corporate social responsibility, which is also supported by the Global Compact.
The quality of the administration no longer suffices for the corporations of today’s world, and what is noted is that the culture of corporate responsibility is weak in the Arab world. So Harvard University for example spends money on its projects through certain dedicated business afforded by the private sector in the US, meaning that corporate culture is very advanced in Western nations.
Does the control of family-run businesses over the economy in the Arab world shape an obstacle to the proliferation of corporate social responsibility?
No, on the contrary. Economic development in various countries worldwide was launched primarily from family-run businesses that currently represent true models of progress and growth. I’d like to point out here that family companies in advanced nations – even those that were transformed into (joint stock) corporations- kept carrying the family name, such as the Ford Co. The strength of the company lies in the name also, because individuals seek to maintain the performance of the company and are therefore concerned about this performance and the company’s reputation. The other point is the limitless support of the family to the company because its collapse means the collapse of the family. The third point is that of interest. The fact the company’s owner holds the largest amount of stock means that it is in his/her best interest to contribute all the time and effort necessary to the company in order to achieve higher returns.
We note that the major companies in Europe and North American are family-run businesses.
How can a family business preserve itself after the founder moves on?
This may be the most difficult matter facing family businesses in the Arab world in particular. The primary responsibility lies with the founder by facilitating the continuity of the company after he passes away, by distributing the responsibilities during his lifetime amongst the various family members in accordance with their skill and expertise. As such, he ensures that the partners will not disagree on who runs the company.
The founder is also called upon to separate between family and company, so the salary of someone from the family who works within the company, should be the same as the other company employees in the same position. If the founder though wants to give a bonus to his son, then it would have to be out of his profits.
The bottom line is that it is necessary to separate between family and company.
Let’s move onto the topic of a common Gulf currency. Will the countries of the Gulf Cooperation Council (GCC) abide by the declared date of 2010?
The GCC is the only model that is relatively successful in the Arab world, and abiding by the date for a common currency doesn’t mean much at present. I view this council as a nucleus for Arab unity along the lines of European unity which was launched with only six countries in the last century. As for the issue of currency, it doesn’t represent a major problem, as the countries of the European Union weren’t hindered by the fact that Britain existed outside the realm of the Euro, just as Britain not joining the Schengen Agreement didn’t hinder the Union. The lesson learned here is the final result. There are commercial transactions running smoothly in the GCC countries and subject to improvement. Practically speaking, the GCC states –with the exception of Kuwait- are connected to a unified currency which is the US dollar, and their interests are connected to this currency. It is very difficult to disengage the dollar from the Gulf currencies.
So the decision in question here is not political at all but rather economic, because the primary income of these economies comes from oil which is priced in the US dollar.
The current depreciation in the dollar’s value doesn’t mean disruption of the Gulf economies because quite simply the depreciation of the dollar doesn’t occur at the same rate as the rise of oil prices. There is no comparison. So the depreciation helped in increasing the incomes of GCC member-states.
I’d like to say that Arab countries are approaching a period of unprecedented prosperity. In the next ten years, the rates of growth will be astronomical which will result in significant surpluses that will encourage investment in various fields such as the basic infrastructure, education, industry and others. For example, the budget of the Kingdom of Saudi Arabia (KSA) reached 400 billion dollars, 100 billion of which were dedicated to education and training, which is an alarmingly high number. This is the trend in numerous countries of the region.
What are the reasons that lead you to say that the Arab region is approaching an era of unprecedented prosperity?
The reasons are clear. The rise in oil prices in global markets is the key to this surge. I predicted in the last three years that the price of oil would reach 100 dollars, and indeed it has. Today, I expect the price of a barrel of oil to reach 200 dollars within the next five years, which means that income will double. I think that the price of 100 dollars is cheap, and that a fair price lies between 150-200 dollars per barrel.
These large incomes will be dedicated for growth and development in the producing nations in the first phase, and later the surpluses will necessarily be dedicated for non-producing Arab countries.
The surpluses acquired by the Arab oil-producing countries cannot all be directed to advanced nations, because the latter doesn’t want them all so that Arab capital will not control these economies, along the same lines that took place in the Dubai Holding case with the American ports. It is the right of these advanced states to be worried about these surpluses; it is only natural since it is expected that these surpluses will reach 20 trillion dollars by 2030, in comparison with 4 trillion now. This is multiple times the American GNP which means that Arab nations can buy these economies, and this worries developed countries. So they will not allow this to happen and as a result these surpluses will head towards Arab nations and those of Southeast Asia, India and China.
I think that a Chinese-Indian-Arab economic bloc will inevitably form in the upcoming period as a result of these surpluses heading to these regions. I would add that the interest of the international community is at odds with the interest of Arab nations for progress, as a result of the international community’s increasing desire to ensure their petroleum needs to secure their economic growth.
In regards to the real estate surge ongoing in the Gulf region: How long can it last for and is it possible to talk about a real estate bubble?
The region presently is going through a transitory phase characterized by inflation whether for units prepared for residences or companies. The upcoming period will witness a drop in the price of real estate as a result of numerous investments being dedicated for this purpose.
What is your evaluation of the economic experience in Qatar?
The Qatari economic experience has been characterized by a gradual progression, which in turn has had a positive effect, because the major surge Qatar is experiencing, is taking place without any side effects and in a serial fashion. The Qatari economy and its slow and steady march forward will make Qatar one of the most important economic markets in the world. This thesis is based on a number of factors such as the researched investment in the infrastructure, in addition to the abundance of gas which represents the future of energy in the world.
Qatar has laid down significant principles according to the role it plays, despite its small size. It has also led a process of reform in media transparency worldwide through the Al Jazeera network. These are advantages that point to the depth of reforms it has adopted in the past few years.