Arab BENELUX to replace GCC? The Strategy of Resolve means end to GCC?

An Arab Benelux could not only mean the total failure of the GCC approach, but also form a real power house, if both leading countries really are able to combine their current and future economic and military strength.  After the failed December 2017 GCC summit, the signs were fully on green to set up a separate approach by parties of the willing. On June 6 both have now announced a joint vision for economic, developmental and military integration through 44 joint strategic projects.

A time frame of 5 years has been set to implement the long list of joint projects. UAE media stated that the new approach has been prepared the last month, including government officials of all different economic sectors and the military. “Strategy of Resolve” should not come as a surprise, as it is based on the blueprints of Saudi Vision 2030 (MBS) and this week’s announcement by the Abu Dhabi’s crown prince Sheikh Mohammed bin Zayed to invest around $13.6 billion to develop Abu Dhabi’s economy.

The underlying red line of the current set up is clear. Since the emergence of Saudi Crown prince Mohammed bin Salman, a bilateral cooperation has emerged in which MBS and MBZ have become real partners and friends. Both leaders, known to young and savvy, have the same vision for the future of their respective countries and region. Without the friendship between both, the Saudi-UAE military strategy for Yemen would not have been materializing. At the same time, Abu Dhabi and Riyadh have coordinated their efforts in Syria and Libya, while supporting the end to the Muslim Brotherhood-led government in Egypt. Both young leaders are bound by the knowledge and understanding that external and internal enemies are waiting for failure, partly supported by Iran. The royal duo also holds the same appetite to not only confront conservative extremists in their own backyard, while setting up confrontational policy towards Iran’s power projections in the Arab region.

The Strategy of Resolve is largely meant to boost the still young and fragile economic diversification programs currently being put in place in Saudi Arabia and the UAE. The ‘end-of-oil’ is seen as point on the horizon that needs to be addressed right now, and not when reality hits the ground.  Diversification of the economy can be done on a national level, without really addressing the ongoing developments in neighboring countries. It seems now that Arab advisors have been looking at the success story of the European Union, which was partly based on the full integration of three smaller economies into an NW-European power house. The success of the Benelux could be copied by Riyadh and Abu Dhabi, while Bahrain could just jump on the moving train without any danger.  A unified strategy or food security, medical stocks, a common supply security system and joint investment in oil, gas and petrochemicals, is the most rational way of dealing with increased risks and investment needs in the coming years. By partly splitting the bill, and not making the mistake of the 1990-2000s to copy developments in neighboring countries, an economy of scale can be reached that makes a real impact.

As the whole GCC is facing increased food security threats and a shortage of potable and drinkable water, combining international and national efforts makes sense. Sources stated that the new bilateral strategy will set up an agricultural investment company with a capital of $1.36 billion. At the same time, in a move to battle power demand, a joint venture fund for renewable energy is to be set up. The latter is in reality already in place, as Saudi and Emirati companies are bidding for each - others renewable projects, such as Dubai or Riyadh’s solar power. Combining technology and financial capabilities will save not only cash but also will speed up future projects.

The MBZ/MBS tandem also has realized that grand-scale projects are creating immense media coverage but will not put butter on the bread of unemployed Saudis or Emiratis. The main weakness of Arab oil producers is the lack of a functional strong SME sector. The latter is not only a stumble block in the Emirates, where large Arab holdings are ruling, but also for the Kingdom. To counter this, and to support the development of SMEs, a third investment fund is being set up.

At present, Saudi and the UAE represent a total GDP of $1trn dollars, with combined exports ranking fourth globally and amount to $750 bn, plus $40.9bn annually invested in infrastructure projects, which generates huge opportunities for bilateral cooperation. As stated in the trade figures, non-oil trade between the UAE and Saudi Arabia is still very low, worth $24 billion, while imports totaled nearly $550 billion.

The two parties also have put in place a strong bi-lateral cooperation in oil and gas, in which billions are planned to be invested in upstream and increasingly downstream projects in the two countries. A combined up- and downstream approach by Saudi Arabia and UAE will possibly change the power equation in the Gulf region and OPEC.

Not yet fully crystallized but maybe even more important, security and defense will be coordinated too. After years of setting up largescale defense industrial projects, which were competing with each other, Riyadh and Abu Dhabi have now decided to combine forces.  Sources are stating that the defense axis will include a number of initiatives such as the joint manufacturing of ammunition, light weapons, vehicles, and electronic shooting systems, as well as cooperation and coordination in foreign military assistance, cooperation in the maintenance of military systems, and standardization of the military industry. An indepth cooperation between UAE’s Tawazun/EDIC and Saudi Military Industries Corporation (SAMI) is a clear goal. A regional defense industry, not competing with each other locally, is needed as now large volumes of cash are being spent on unviable projects.

Even that MBS and MBZ have reiterated that the two countries are still committed to the GCC, which also includes Bahrain, Kuwait, Qatar and Oman, the current move is a direct attack on the GCC. Since the start of the Qatar Crisis June 5 2017, Saudi Arabia, UAE, Bahrain and non-GCC member Egypt all have broken off all diplomatic ties with Qatar. Economic ties also have been severed, resulting in a GCC organization without teeth. No solution to this is on the horizon, while geopolitical and economic developments necessitate immediate changes to their economies. The current approach is clearly a break with decades of setting up the GCC. Geopolitics are currently ruling out any regional approach according to the two leaders in the region, MBS and MBZ. The future will tell if this is going to have the same economic and security benefits as has been shown by the BENELUX in the 1950s.

The Strategy of Resolve at present is slated to encompass the following axis approach:

1. Economic axis

Full integration of the economies while assessing innovative solutions for optimal utilization of existing resources.
Full focus on financial services and markets, logistics and infrastructure, production and industry, supply’s security, customs union and common market, environment, agriculture and water, renewable energy, tourism and national heritage, business leadership, foreign partnerships, government development and government services, housing, youth, sports, oil, gas and petrochemicals. The economic axis outlines a number of joint projects between the two countries, including:

• Launching a policy to enable the banking sector to set up branches in the two countries
• Support and exchange of Fin-Tech
• Cooperation within the insurance sector to improve and support insurance markets in terms of products, pricing and regulatory mechanism.
• Sharing experiences in infrastructure management.
• Establishment of a Joint Investment Fund for SMEs
• Activate value-added manufacturing industries in combination with existing industries to support manufacturing industries and implement them through small and medium enterprises in the fields of iron, aluminum and petrochemicals.
• Building a precise and standardized industrial database as well as standardization of coding systems for industrial goods and services.
• Conduct a joint exercise between the two parties to test the supply security system in key sectors.
• Develop a strategic medical stock plan, establish a joint plant for the manufacture of sensitive medical drugs, and establish a joint reference laboratory to achieve safety standards in this field and exchange experiences, cadres and medical staff in the field of emergency and crisis.
• Joint tax cooperation
• Facilitate the exercise of economic activities and exchange of investment opportunities through the establishment of a dedicated office to facilitate the economic activities, and the establishment of a unified electronic portal linking the two countries to follow-up on complaints and suggestions concerning the common customs and markets.
• Facilitate the flow of traffic in the ports
• Establishing a joint venture company for agricultural investment, with a capital of 5 billion dirhams, to contribute to the provision of imported commodities to both countries and achieve sustainable food security.
• Adopting a unified strategy for food security in both countries to harness productive resources (agriculture, livestock and fisheries) and work on joint strategic projects to enhance future food security of the two countries.
• Establishment of a research center to develop and localize desalination technologies
• Establishment of a Council for Environmental Excellence to protect the environment and wildlife between the two countries
• Establishment of the Saudi-Emirati Investment Fund for Renewable Energy to attract large and start-up companies and support them in funding research and development projects.
• Implementation of the Gulf electrical interconnection system, in order to benefit from the productive capacity of energy to both countries.
• Exchange of experiences in the nuclear energy sector.
• The launch of a common vision and identity of tourism and national heritage of the two countries
• Harmonization of regulations, procedures and legislation between the two countries on entrepreneurship and small and medium enterprises.
• The establishment of an investment advisory board, with the aim of cooperation and transfer of knowledge in the field of foreign investments and coordination
• Investment opportunity cooperation UAE Saudi Arabia
• Develop government services and transfer experiences between the two countries, and identify development opportunities for laws and procedures.
• Develop the security of government services, through the formation of a joint team to respond, build capacity, and deal with the electronic security of government services.
• Launching the innovative housing solutions program to reduce / eliminate restrictions (legislative, financing and procedural) that slow down the development of housing services and reduce the challenges facing the sector.
• Launching the residential welfare program for the citizens of the two countries, with the aim of stimulating and motivating the financing agencies to provide integrated housing products to citizens, attracting modern construction techniques and encouraging local manufacturing, as well as developing the necessary legislations and guarantees to stimulate the residential sector.
• International joint investment in the oil, gas and petrochemical sector.
• Cooperate in applications to convert carbon dioxide into petroleum products.
• Cooperation in the research and development of various applications related to the oil, gas and petrochemical sector.

2. Human and Knowledge axis

Integration of the educational system in both countries, focusing on: higher education, research cooperation, public education and technical education.
Projects in this axis include:

• Cooperation between institutions of higher education through the development of a joint plan to promote common programs between the Saudi Arabia and the UAE universities to enable students to benefit from educational institutions in both countries.
• Establishing the Saudi-Emirati Committee for Technical Education Policy, which is responsible for the harmonization of strategies, standards and professional qualifications between the two countries. The policy will also provide databases for future training needs and sharing experiences in public and private sector partnerships.
• Establishing a virtual college to provide appropriate technical disciplines, aiming to create a global Arab smart platform that includes training programs and materials (project management, industrial safety and inspection training), virtual exercises (such as special exercises for people with special needs), and technical and vocational qualifications required by the labor market in both countries.
• Promote innovation in technical education by creating a common platform that includes innovations and creations.

3. Political, Security and Military axis

The political, security and military axis aims at enhancing cooperation and integration between the two countries in the political, security and military fields, thus maintaining the sovereignty of both nations regionally and globally. It focuses on the cooperation and integration in following areas: military, political, and security.

The strategy comprises three main pillars: economic; human and knowledge; and political, security and military. A time frame of five years has been set to implement the 60 joint projects out of 175 total initiatives outlined in the strategy.

Argaam has compiled a list of some of the major projects under each pillar below:

1)   Economic pillar:

• Establishing a joint investment fund to invest in small- and medium-sized enterprises in industrial sectors, in partnership with the private sector.
• Developing a strategic medical stock plan, establishing a joint plant for the manufacture of sensitive medical drugs, and establishing a joint reference laboratory to achieve safety standards in this field and exchange experiences, cadres and medical staff in the field of emergency and crisis.
• Joint cooperation in the field of taxation.
• Setting up a dedicated office to facilitate economic activities, and launching a unified electronic portal linking the two countries to follow-up on complaints and suggestions concerning common customs and markets.
• Improving traffic flow in ports by addressing obstacles facing cross-border trade and proposing solutions.
• Establishing a joint venture company for agricultural investment, with a capital of AED 5 billion, to contribute to the provision of imported commodities to both countries and achieve sustainable food security.
• Adopting a unified strategy for food security in both countries to harness productive resources (agriculture, livestock and fisheries) and working on joint strategic projects to enhance future food security of the two countries.
• Establishing a research center to develop and localize desalination technologies, in addition to studying the application of desalination techniques, conversion of moisture into water using renewable energy, and utilization of thermal energy for evaporation and desalination processes.
• Establishing the Saudi-Emirati Investment Fund for Renewable Energy to attract large and startup companies and support them in funding research and development projects.
• Implementing the Gulf electrical interconnection system, in order to benefit from the energy production capacity of both countries.
• Exchange of experiences and expertise in the nuclear energy sector.
• Launching a common vision for developing tourism in both countries, in order to attract more visitors to the region and better harness the two nations’ tourism potential.
• Establishing an investment advisory board, with the aim of cooperation and knowledge transfer in the field of foreign investment and coordination.
• Cooperation in creating investment opportunities in Saudi Arabia and the UAE.
• Launching a housing solutions program to further develop housing services, and reduce the challenges facing the sector.
• Launching residential welfare programme for the citizens of the two countries, with the aim of incentivizing financing agencies to provide housing products to citizens, developing modern construction techniques and encouraging local manufacturing, as well as developing legislations to stimulate the residential sector.
• International joint investment in the oil, gas and petrochemical sector.
• Cooperate in applications to convert carbon dioxide into petroleum products.

2)  Projects in the human and knowledge pillar include:

• Cooperation between higher education institutions through the development of a joint plan to promote common programs between Saudi and UAE universities.
• Launching a digital education system, which includes a complete digital file for each student that enables him/her to explore the future of each career sector and sets expectations for the learner’s academic and professional path based on artificial intelligence systems.
• Establishing the Saudi-Emirati Comittee for Technical Education Policy, which will harmonize strategies, standards and professional qualifications between the two countries. The policy will also provide databases for future training needs and sharing experiences in public and private sector partnerships.
• Establishing a virtual college to provide appropriate technical disciplines, aiming to create a global Arab smart platform that includes training programs and materials, virtual exercises, and technical and vocational qualifications required by the labor market in both countries.

3)  Political, security and military pillar:

• This axis includes a number of initiatives such as the joint manufacturing of ammunition, light weapons, vehicles, and electronic shooting systems, as well as cooperation and coordination in foreign military assistance, cooperation in the maintenance of military systems, and standardization of the military industry.