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.
Killing Jamal Khashoggi symbolizes a bigger problem
Continuing Contribution
Politically, former Prime Minister Hailemariam Dessalegn will likely be best known for instigating a peaceful transition of power. Yet, he has dedicated a large chunk of his life to the engineering profession and academia. As he continues his life of service he is busy helping to improve the Ethiopian Association of Civil Engineers (EACE). He hopes to serve as imputes for instilling an ethical mindset in the nation’s citizens from the womb to the tomb in order to nip the virus of corruption the nation is experiencing in the bud. Capital’s reporter sits down and talks with Hailemariam about his role strengthening EACE.
Capital: Tell us about your new role serving EACE, how have you managed to be so productive in your busy life?
Hailemariam Dessalegn: There is always enough time for any job if you use proper time management. I do have a lot more time since I have resigned as Prime Minister because I am not in such a stressful environment. Now I want to spend my time implementing a vibrant, professional association which I have learned about after several years in the civil engineering field. I have spent many years in higher education and the profession, and in the civil engineering association as a regular, honorable member. I believe that as the main member I need to continue to contribute. In addition to my regular membership, I need to use my influence to help the association reach its full potential and take it to the next level. For instance we need to develop professional certification. The association needs to work with the government to improve rules and regulations. There have been efforts made already but we want to push these along to ensure they become successful.
Most of the civil engineers in Ethiopia are young; so it is our duty to ensure their ethical and professional capacity is strengthened. They should be working together with higher education facilities because this is vital for the development of our nation. Ethics isn’t something you catch all of a sudden it’s something that must be developed starting in childhood. Universities must play a major role in creating ethical citizens. However, the universities have very poor performance in this regard and I want to play a role in making things better. Ethics will make the entire nation successful. If you look at the construction industry in Ethiopia, there are some construction companies which have failed to live up to the ethical principles of the profession. The wealth of the nation did not have to be wasted because of the ethical lapses of some. It is very difficult to hear about such destruction and they must be stopped before it is too late. So the role for the professional association is complex. I want to use my previous experience and influence to bring significant change to this sector. I have decided to contribute my efforts to the sector and the association.
Capital: How will you use your connections with the outside world to improve the performance of the association in the global chain?
Hailemariam: I am now engaged in various global initiatives. I have to choose from many requests which mean a very good opportunity to make our association internationally competitive. Establishing relationships with the American Civil Engineers Association and Canadian Civil Engineers Association helps us to gain prominence and establish relationships. Also, working with emerging associations in China, Europe and Africa is fundamental. Fortunately the president of European Civil Engineer Association is my classmate when I was in Finland that is a good opportunity for our association to establish good cooperation. Sharing knowledge with associations which have a lot of experience will help us grow and prosper.
Capital: The association has several programs related to improving members’ skills. At the same time the financial crunch has affected its activity. How will you use your influence to alleviate the financial problems the association is experiencing, and can you obtain global financial support?
Hailemariam: I believe we have to give priority to local resource mobilization and not rely on international aid. I always look at the Ethiopian Orthodox Tewahedo Church as an example. They managed to build beautiful buildings in towns. They accomplished this through the support of their congregations not resources from abroad. In the construction sector, we have good resources we have not resorted to using foreign aid. Most of the class one contractors in Ethiopia are civil engineers and they are wealthy. So if they want their profession to be respected they have to contribute and their investment will be even more significant than institutional contributions. Also, other members who live via their salaries have to continue contributing as much as they can. The government has also given enough space so the associations including other engineering associations besides civil engineers can build our offices and lease areas. We have to come together with these other engineering associations to construct our buildings. We can demonstrate the construction and architectural development of the nation with our head office. We could also generate significant income by owning such a building. So this is the responsibility that I am planning to take with the leaders of the associations, to approach the Prime Minister and Addis Ababa Mayor to give us enough land.
Capital: Reduction of waste in the construction sector has been a priority topic in your 21st general assembly held here in the UNECA. How can the nation use its resources more wisely?
Hailemariam: There was a proclamation and regulation issued to govern the mobilization of construction for infrastructure. The mobilization of utilities is based on the road projects. There is also an agency established to govern the issue named the Federal Integrated Infrastructure Development Coordinating Agency. So the government noticed the matter and even established a respective body but the problem is implementation. But beyond all our perception towards the urban cultural matters, our culture is an agrarian culture which is transitioning into an urban culture. So there is a need to change the mindset. If you notice the understanding of our children towards us there is a similarity. Many matters are going to be resolved when we join the middle-income living standards and change our life style.
Capital: Many people say that the construction sector has been hijacked by misdemeanors and illegal acts. At the same time the government admits that corruption is a major challenge in the construction sector. What should the government do regarding this?
Hailemariam: This is one of the major issues that always make me depressed and worrisome. The main role has to be made in society to make corruption a sin. This is not a role only to be played by the government. What the government is doing is filling the gap but other holes will erupt if this is not solved at the society level. The professional associations have to play a significant role in such a manner, and that is their main duty as other nations have experienced. Professional ethics is their main duty but the government must encourage professional associations. If the associations are entitled to professional licensing they will regulate their members. They will take significant actions against their members if they are entitled to the process. The government is hunting the criminals but that is not a sustainable method. The sustainability has to be focused on avoiding the ethical irregularities especially corruption before it happens.
Sara Mohammed
Name: Sara Mohammed
Education: High School Graduate
Company name: Next Design
Title: Owner
Founded in: 2003
What it does: Designing clothes
HQ: Bole
Number of employees: 53
Startup Capital: 120,000 birr
Current capital: 15 million birr
Reason for starting a Business: Passion for designing clothes
Biggest perk of ownership: Doing what I want
Biggest strength: Never give up
Biggest challenge: Not being able to get a loan from bank
Plan: To expand
First career: Model
Most interested in meeting: PM Abiy Ahmed
Most admired person: My mother
Stress reducer: Chatting with my children
Favorite past-time: Working
Favorite book: Bible
Favorite destination: Paris
Favorite automobile: Hyundai
Sanctions and corruption
On 5 November 2018, international media reported that Iran vows to sell il, bust US sanctions. When he was elected in 2013, Iran’s President Hassan Rouhani sharply criticised his predecessor President Mahmoud Ahmadinejad for widespread corruption, which was partly a result of an attempt from Iran to bypass United States and UN-imposed sanctions.
Before signing the Iran nuclear deal that eased these sanctions in 2015, Iran tried to bypass the United States and UN by selling its oil through undercover government and private channels. This strategy laid the groundwork for unprecedented corruption, which included Iran’s Revolutionary Guard, the police and even privates citizens who sold Iranian oil on the black market. This allowed sizeable fortunes to amass, with millions of US dollars never finding their way to Iran’s tax coffers.
But only two years latter, Rouhani came into office and promised to stop bypassing and establish transparency to fight massive corruption rooted at the heart of the government. Now it seems President Rouhani has forgotten his sharp criticism, which was welcomed by experts and voters. He admits that Iran will bypass sanctions once again “with great pride”. He omits the consequences for the Iranian economy, which is still suffering from the country’s former attempt at bypassing sanctions.
Back in 2007, an international commission of inquiry report revealed that international sanctions are an invitation to all manner of corruption, including money laundering siting Iraq a case in point. More than two decades ago, from 1995 to 2003, the United Nations ran an oil-for-food program for Iraq. The country was then under the iron fist of the then President Saddam Hussein.
What was true back then is just as true today. However, it appears that the United States Treasury has learned from the past. For that reason, it has taken the extraordinary step of publicly detailing a brand new scheme of abuse by naming names.
The Iraq-related UN racket was exposed by a commission headed by former United States Central Bank Chief Paul Volcker. Volcker’s book exposed a scheme that could serve as the plot for a major movie. The central character is a Syrian national Mohammad Amer Alchwiki. He runs a company called Global Vision Group in Moscow. At the core of the scheme, stated the United States Treasury, are the Iranians who are breaking United States sanctions by shipping oil and helping the Syrians to pay for it.
The Global Vision Group has been arranging the shipment of millions of barrels of oil from the National Iranian Oil Company to the Syrian government using vessels insured by European companies. The United States Treasury said: “Since at least 2014, vessels carrying Iranian oil have switched off the Automatic Identification System (AIS) onboard before delivering oil to Syria, as a means of concealing the true destination and recipient of this Iranian oil.”
Then, the Assad government uses the Global Vision Group to assist in moving hundreds of millions of dollars, which originated with the Central Bank of Iran, to the Islamic Revolutionary Guard which serves as paymaster to Hamas and Hizballah. Illustrative of how money laundering schemes operate, the participants in this racket used intermediary companies to hide their operations.
According to the United States Treasury dealings with the Iranians by Alchwiki’s group were managed through a Russian company Promsyrioimport, which is controlled by the Russian Ministry of Energy, and an Iranian pharmaceutical company, with funds coming from the Central Bank of Iran.
The United States Treasury has targeted nine individuals and organizations for sanctions in this scheme, but will this action make any difference? Peter Rudolf, Senior Researcher at German Institute for International and Security Affairs argued that it may well end up forcing the Iranians and Russians to establish new operations to achieve their purposes. But it seems unlikely that the United States action will diminish the determination of the Iranian and Russian governments to support the Syrian regime and to use Iranian oil in the process.
Lain Cameron of Oxford University asserted that sanctions, as we have seen often, and as seen so clearly in this case, push the sanctioned groups and governments into operating schemes through intermediary companies to cover the illicit flows of goods and cash. Bribery becomes a standard part of the process. Cash transfers across borders are hidden as far as is possible, and often successfully.
Frank Vogl, Co-founder of Transparency International and author of a book entitled “Waging War on Corruption: Inside the Movement Fighting the Abuse of Power” underlined that sanctions could be more effective if a far tougher anti-money laundering set of measures were in place by the governments that control all important Western financial centers. According to Frank Vogl, it is ironic that theUnited States Treasury should be so vigilant and effective in investigating and exposing sanction-busting schemes, and so understaffed and ineffective in exposing illicit financial flows into the United States.
Lain Cameron noted that the United States does not have in place a system that requires the naming of the beneficial owners of shell companies that are controlled by foreign citizens and own investment assets in the United States. The U.K. has this, and it ought to be a model for all countries. Republican and Democrat leaders in both houses of the United States Congress have been giving increasing support to draft legislation that could to a degree resemble the approach that the British have taken.
