Killing Jamal Khashoggi symbolizes a bigger problem

The Khashoggi crisis puts a spotlight on the fact that much of investment in the Gulf, irrespective of whether it is domestic, Western or Chinese, comes from financial, technology and other service industries, the arms industry or Gulf governments. It is focused on services, infrastructure or enhancing the state’s capacities rather than on manufacturing, industrial development and the nurturing of an independent private sector.
In the wake of the suspected killing of journalist Jamal Khashoggi, there is growing Western political and corporate reluctance to be associated with Saudi Arabia. James Dorsey, Senior fellow at the S. Rajaratnam School of International Studies in Singapore asserted that Western technology, media, financial and other services industries are now worried that association with the Saudi regime will significantly tarnish their international reputations. James Dorsey noted that by contrast, the United States arms industry, with President Donald Trump’s encouragement, has proven so far less worried about reputational damage.
In highlighting differences in investment strategies in the Middle East and the rest of Asia, the fallout of Mr. Khashoggi’s killing goes beyond the parameters of a single incident such as the drop in attendance at the recent Davos in the Desert conference, a high-profile investors’ conference put on in Riyadh, Saudi Arabia.
According to Prof. Liz Safet of Sydney Hampden College, it suggests that foreign investment ought to be embedded in broader social and economic policies as well as an environment that promises stability. On that basis, one can ensure that foreign investment is productive, contributes to sustainable growth and benefits broad segments of the population. Prof. Liz Safet further noted that that is not the case in the Gulf region. With the exception of state-run airlines and DP World, Dubai’s global port operator, the bulk of investment is portfolios managed by sovereign wealth funds, trophies or investment designed to enhance a country’s international prestige and soft power.
Dr. Raul Andrews of Howard University stated that China’s1 trillion dollar, infrastructure-driven Belt and Road initiative may be the Asian exception that comes closest to some of the Gulf’s prestige-oriented soft power investments. Even so, the Belt and Road initiative, designed to alleviate domestic over-capacity by state-owned companies that are not beholden to short-term shareholder demands contributes to productive economic growth in the People’s Republic itself. To be sure, the Gulf states with their small populations focus more narrowly on services and oil and gas derivatives rather than on manufacturing and industry in general.
Nonetheless, that too requires an education system that encourages critical thinking and the freedom to question, allow one’s mind to roam without fear of repercussion, as well as free, unfettered access to information. According to Dr. Raul Andrews, these are all increasingly in short supply in a part of the world in which, despite its immense material riches, freedoms are severely curtailed.
In contrast, Asian nations are far less endowed in terms of natural resources. That has equipped them with a natural focus on managing investors’ expectations in an environment of relative political stability.
Meanwhile, Prof. John Nils of University of Mississippi argued that Saudi Arabia due to the Khashoggi murder and the completely inept, if not outright deceitful handling of the matter by the country’s leading authorities, has gravely damaged confidence in its ability to reform and diversify its oil-based economy.
According to Prof. John Nils, this is all the more devastating economically as it comes after repeated delays and finally suspending indefinitely plans to list 5% of its national oil company, Saudi Arabian Oil Company or Aramco, in what would have been the world’s largest ever initial public offering. No wonder that foreign direct investment in Saudi Arabia last year plunged to a 14-year low.
James Dorsey adamantly argued that all of this is not to say that the rest of Asia does not have its own questionable policies to contend with. However, none of these are likely to fundamentally undermine investor confidence, derail existing social and economic policies that have produced results or produce situations in which avoidance of reputational damage becomes a priority.
At the bottom line, China is no less autocratic than the Gulf States, while Hindu nationalism in India fits a global trend towards populism and illiberal democracy. Nevertheless, what differentiates much of Asia from the Gulf and accounts for its economic success are policies that ensure a relatively stable environment that is broadly focused on n social and economic enhancement rather than primarily on regime survival. There is a big lesson in that that virtually all Gulf rulers still have to grasp.