SAISer Book Review: “The Financial Markets of the Arab Gulf: Power, Politics and Money,” by Professor Jean-François Seznec and Samer Mosis

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By Leif Olson

For many, the Arab Gulf is associated with generous rentier states, opulent monarchs with fantastical material wealth, and behemothic buildings like the Burj Khalifa. One might wonder how the region developed such a robust financial ecosystem. Jean-François Seznec, an adjunct lecturer in the Middle East Studies department at SAIS, and Samer Mosis, a SAIS Strategic Studies alumnus, seek to answer this question and peer into the future of Gulf finance in their 2018 book, “The Financial Markets of the Arab Gulf: Power, Politics and Money.” Seznec and Mosis delineate a detailed financial history of the Gulf economies and their structural dependence on culture. Seznec and Mosis argue that several interrelated factors changed the form and function of financial institutions in the Gulf and led to its current wealth. They predict that, given economic pressures, Gulf states will slowly relinquish their stranglehold on markets, allowing them to develop practices and norms typical of Western markets. For students interested in the role of the Gulf economies globally, especially regarding investment in Asia, financial diversification, and cultural-economic “Westernization,” this book is an essential resource.

Seznec and Mosis trace the history of financial markets in the Gulf Cooperation Council (GCC) states, taking note of Islamic banks that shaped interest creation in the region, money-changers who went from individual entrepreneurs to institutions, and the Bahrain Offshore Market, which, with the development of new financial technologies, became obsolete, excluding Bahrain from financial dominance. They then transition to individual analysis of each GCC state—the United Arab Emirates (UAE), Saudi Arabia, Bahrain, Qatar, Kuwait and Oman. The UAE chapter revolves largely around Dubai, which the authors compare to Abu Dhabi. The authors explain that the UAE is an excellent business location, highlighting how well-managed Free Trade Zones (FTZs) like the Jebel Ali Free Zone Authority facilitate foreign investment.

Where the UAE’s financial markets are relatively free, Saudi Arabia seems intent on total control. The Saudi Arabia chapter explores the relationship between the Saudi Arabian Monetary Authority , the Saudi Public Investment Fund, and the rest of the financial market. Since the 1970s, the Saudi Crown has regulated or controlled much of the economy—but Samer and Mosis predict that it will likely cede some control as the industrial sector grows and Crown Prince Mohammed bin Salman’s “2030 Vision” unfolds.

The chapter devoted to Bahrain, Qatar, Kuwait, and Oman paints a less optimistic picture. Bahrain has become economically reliant on Saudi Arabia and the UAE, despite its once hopeful position as a banking hub. Qatar suffers from some form of “Dutch Disease” with little indication of diversifying significantly from its major export, natural gas. Kuwait is a stereotypical rentier-state with an anemic private sector—which prevents it from attracting investment and precludes its candidacy as a major financial power. Finally, Oman, while benefiting from a miraculous transformation at the hands of Sultan Qaboos bin Said Al Said, has economically stagnated. Unless Omanallows privatization at a greater rate, these conditions may generate political unrest. The remainder of the book is made up of four case studies which illustrate in detail the interaction between financial markets and power structures in the Gulf.

Seznec and Mosis excel when combining stories of the past with projections into the future. In one example, the authors examine the Gulf’s new focus on Asia. Between 1990 and 2013, the percent of total GCC exports to Europe and North America shrank from 40% to 19%. In the same time frame, the share of GCC exports to India and China grew from 2-3% to 12%. The authors use this data as a warning to Europe and North America. The authors describe the run-up to the 2008 financial crisis, a time when Gulf states were treated as second-class economies, and xenophobia punctuated their interactions with the West. As the crisis deepened, the West changed its tone toward the GCC, pressuring them to bail out the global economy with their massive dollar-denominated liquidity. While the GCC eventually conceded, they have not forgotten how the West treated them. The authors contend that this could mean trouble for Europe and North America in the event of another major recession.

GCC funding organizations, like Mohammad bin Salman’s Public Investment Fund, are leading investment in Asia. The PIF is tasked with carrying out Vision 2030 by investing in diverse, high-risk, high-return investments. In the 1970s, Saudi Arabia created the PIF, the Saudi Industrial Development Fund, the Agricultural Development Fund, and the Real Estate Fund, to prevent chronic “backwardness” in their economy. The authors chronicle the push from the Saudi monarchy to ensure economic diversification and modernization. They describe a similar process in the UAE. Abu Dhabi and Dubai have intertwined economic and cultural structures that drive diversification. Again, the authors demonstrate that financial and economic change are driven by more than just economic factors, citing the unique political structure as one factor in the shift from non-oil GDP of 37% in 1972 to 69% in 2015. The authors also explain that the UAE’s growing private sector is due, in large part, to the proliferation of FTZs in Dubai.

FTZs and diversification are indicators and drivers of modernization in GCC markets. This modernization comes with a degree of “Westernization.” Seznec and Mosis make a tentative, but astute, observation that as Saudi industry continues to develop, more people from diverse familial backgrounds will meet each other in the workforce. Perhaps, they surmise, this will lead to cross-cutting cleavages within the society which may reduce historico-cultural separation. More broadly, financial markets across the region are becoming more dependent on the private sector, which may mean similar cultural shifts in other states.

Seznec and Mosis’s compelling storytelling and forward-looking conclusions make this book both an engaging read and an excellent resource for students interested in transitioning economies in the GCC. Students looking to learn more might consider Professor Seznec’s classes, which include Business in the Middle East, Energy in the Gulf, and Politics in the Gulf. Mosis, who now works as a Senior Analyst at Global Platts Analytics, serves as a student mentor through the SAIS Career Center and may represent another resource for interested students.