In a hostile and unstable region, the Gulf Arab states have had to compensate for their limited capacity and appetite for military action. Using immense oil wealth and tight control of policymaking, the ruling families of the Gulf have refined aid and investment into sophisticated foreign policy tools. Gulf aid is likely to impact significantly on the Arab transition countries, helping them meet immediate financial obligations, but often at the expense of their long-term interests.
While the outbreak of the Arab Spring and ensuing political disruption has weakened or overthrown some allies of Gulf ruling families, it is also an opportunity for them to use their financial influence to shape whatever order replaces it.
The Gulf Arab states, namely Saudi Arabia, Qatar, the United Arab Emirates (UAE), Oman, Bahrain, and Kuwait, have developed a broad alliance through which members coordinate closely on strategic, economic, and political issues. With the exception of Oman, these countries are led by Sunni Muslim ruling families. They are acutely aware of their military vulnerability to Shia Iran, and govern small and not entirely homogenous populations. Although Shia unrest in Bahrain has received most attention recently, it is not the only Gulf country whose population is fragmented along sectarian or tribal lines. Saudi Arabia’s puritanically Sunni state heavily represses its sizable Shia minority, for example. The UAE is a federation of city-states that only a few decades ago were in constant (and sometimes violent) competition. These vulnerabilities and the general conservatism of the royal families have led the Gulf states to pursue cautious foreign policies, generally aimed at preserving the regional status quo. Indeed, until they were overthrown Egypt’s Hosni Mubarak, Tunisia’s Zine Abidine Ben Ali, and Yemen’s Ali Abdullah Saleh were close allies of the Gulf ruling families.
Most international foreign aid is shaped to an extent by political considerations, but Gulf foreign assistance is especially politicized. Since the Gulf states are essentially controlled by wealthy families, decision-making is necessarily opaque and the domain of key family members in the royal courts, or diwan, rather than formal ministries and specialized bureaucracies. The governments’ sheer wealth, combined with a lack of accountability and weak political constraints, means economic logic need not figure prominently or at all in foreign aid decisions.
The Gulf states do however impose significant political conditions on aid recipients. Many Arab states are willing to meet these conditions, which are seen as less threatening than the difficult economic reforms which international organizations such as the International Monetary Fund (IMF) demand. In Egypt and Jordan, for example, the IMF has demanded reforms likely to aggravate economic unrest at a politically sensitive time, such as subsidy reductions and public spending cuts. International organizations may also push for legal reforms, crackdowns on corruption, and emphasizing economic efficiency over patronage. Whatever their economic merit, such policies risk provoking both the general public and elites close to the state. Rather than economic reforms, the Gulf ruling families are more likely to insist on policies they perceive as keeping allied regimes in power and securing their cooperation in containing Iran. Arab governments will in turn see Gulf financial support as an ‘easy out’ that allows them to avoid risky reforms while preserving regime stability.
The Gulf countries are wealthy enough that their foreign direct investments (FDI) need not generate strong or even any returns. The FDI they provide is therefore more akin to financial aid than investment, contingent on the political behavior of the recipient. Gulf FDI in Lebanon was high when its government was led by allies of Saudi Arabia, which accounts for nearly half of Arab FDI there. It fell dramatically after a Hezbollah-led coalition hostile to the Saudi kingdom gained control of the cabinet. Following the recent nomination of a Saudi-backed Lebanese prime minister, Gulf FDI in Lebanon may well pick up, especially given strong Saudi influence over other Gulf countries’ foreign policies.
In another example of politicized foreign aid, the Gulf Cooperation Council, a Gulf state coalition whose members cooperate closely on regional affairs, has allowed Jordan to join its free trade bloc, despite wide disparities in their economies and years of rejecting Jordanian bids for membership. Support for Jordan is likely driven by a need to secure its cooperation against the neighboring Syrian regime (which some Gulf countries are trying to overthrow), historical Saudi-Jordanian ties, and affinity for a fellow monarchy. It is noteworthy however that despite pledging billions in much-needed development aid to Jordan, the money is essentially being drip-fed, clearly contingent on Jordanian cooperation in weakening the Syria regime. Jordan likely recognizes this and appears to be hedging against overreliance on tenuous Gulf support by seeking help from the IMF.
Financial assistance to fellow Gulf countries is also revealing. Widespread Shia unrest against the Sunni monarchy in Bahrain, a close ally of Saudi Arabia, and rising discontent in Oman led other Gulf countries to set up a $20 billion support fund for the two countries. The scale of funding dwarfed the assistance offered to the larger (and arguably more troubled) economies of Lebanon and Jordan, not to mention Egypt. Saudi Arabia has its own restive Shia population, and is clearly concerned about the Bahraini monarchy’s ability to contain its Shia by spending its way through its difficulties.
There are other, more subtle financial tools available to Gulf countries. Many Arab countries such as Jordan, Yemen, and Lebanon depend heavily on remittances from expatriates working in the Gulf. Granting and withholding work visas is therefore an effective way for Gulf states to apply political pressure. While such policies are even more secretive than FDI and aid decisions, there are credible reports by Gulf-based business owners that visas for Lebanese have became more difficult to acquire since the formation of a Hezbollah-led cabinet in Lebanon. During the recent Hezbollah-led cabinet’s term, Qatar, the UAE, and Saudi Arabia issued repeated warnings against travel to Lebanon, whose economy depends heavily on Gulf Arab tourist spending. Although the security situation in Lebanon was admittedly tenuous, it was no worse than in previous years under pro-Saudi cabinets, during which the Gulf governments were less vocal about the threat.
The politicization of economic aid and foreign investment is not unique to the Gulf states nor is it harmful in and of itself; in some ways it is beneficial. The absence of transparent and formal, public deliberation over policies liberates aid from political constraints, speeding up its provision. Gulf states’ tendency to offer direct grants rather than conditional loans can quickly shore up precarious public finances on less onerous terms than those of the IMF (or no terms at all). Countries with fragile economies weakened by external shocks, such as Jordan, can face serious policy constraints including the risk of unpopular reforms triggering widespread unrest. Countries plagued by periodic outbreaks of violence and war, such as Lebanon, may find it impossible to attract enough funding to rebuild their economies without GCC support.
The conditions attached to Gulf aid however and the policies they encourage can be more perilous to recipients than IMF requirements. For one, the secrecy of foreign aid and investment decisions makes it difficult for GCC states to coordinate aid efforts, and impossible if their regional interests diverge. Cooperation with international organizations and – governments outside the Gulf is even more challenging. Additionally, the Gulf countries’ wealth and tolerance for sustaining losses encourages unsound investments and ineffective development strategies abroad, representing missed opportunities for both providers and recipients. It is also an abuse of Gulf populations’ trust in their governments to spend their national wealth wisely, especially as countries like Saudi Arabia face their own significant economic challenges.
Above all, access to Gulf funding divorced from economic performance and development has a pernicious effect on recipients’ economies and politics. It entrenches elites, weakens competition, and exempts states from implementing painful but necessary reforms. It undermines public trust in governments and concentrates growth in narrow sectors that readily absorb Gulf money such as real estate and banking. The conditions attached to funding encourage myopic political strategies that run counter to the long-term interests of recipient countries. Arab states are less likely to heed public demands for reform if they can rely on the Gulf states to bail out their economies and finance their security apparatus.
The Gulf states’ foreign aid strategies and the ensuing behavior of recipient countries are in many ways symptomatic of the troubled political culture and short-sighted economic strategies at the root of the Arab uprisings: secretive decision-making, an emphasis on security at the expense of pluralism and economic dynamism, and a constant struggle to preserve the regional political status quo at any cost. Although oil wealth may allow the donors to sustain this approach for the foreseeable future, it is less clear that the Arab countries receiving the aid still have that luxury.
Faysal Itani is a fellow with the Rafik Hariri Center for the Middle East at the Atlantic Council.