Can Gulf states adopt universal basic income?

Existing social welfare systems have insulated Gulf nationals from changing economic realities and the likelihood of a major global energy transition in the coming decades.

al-monitor Saudi students pass their final exams at a workshop in the Higher Institute for Plastics Fabrication, Riyadh, Saudi Arabia, June 13, 2016. Reducing the kingdom's high unemployment rate is a foundation of the government's wide-ranging Vision 2030 reform plan. Photo by FAYEZ NURELDINE/AFP via Getty Images.

Oct 26, 2020

The era of endless oil demand growth is over, oil major BP predicts, and so would eventually be whole segments of generous welfare systems that have long played a central role in the Arab Gulf region, creating a solid middle class and shaping every facet of modern life.

During the five years following the 2014 oil crash, Gulf Cooperation Council (GCC) countries accumulated over $500 billion in budget deficits. Therefore, in the coming years, an economic transformation could be vital to preventing a decline in social spendings.

“I have to admit that some policymakers in the Gulf are moving to modernize the social safety net that they have,” World Bank Gulf country director Issam Abousleiman told Al-Monitor, noting the “huge determination” of some countries to work on this transformation. According to him, Saudi Arabia’s long-term reform plan Vision 2030 aims at creating a “modern social safety net that takes care of the less fortunate.”

Ali al-Salim is the co-founder of the investment consultancy firm Arkan Partners and the author of an October report that suggests streamlining Kuwait’s oil-revenue distribution mechanism by granting citizens a universal basic income.

Such a policy could limit the creation of “fictitious jobs” that arose from a constitutional obligation to guarantee public sector employment to every Kuwaiti. “Although the welfare system began with good intentions, over its near 100-year existence it has slowly morphed into a sprawling costly giant, riddled with inefficiency,” the report reads.

'Send a signal' to the population

Traditionally, state-owned reserve funds sheltered Gulf nationals from the fluctuations of oil prices — between January and April, crude oil prices plummeted by over 60% — but ballooning public deficits might force governments to change the status quo.

Salim’s report suggests to “pass on the volatility of oil prices to Kuwaiti citizens.” The adviser told Al-Monitor the current welfare system has insulated people from understanding the impact of oil price fluctuations on Kuwait's public finances. “I think the volatility of oil prices is something that the population fundamentally doesn't appreciate,” he said.

Local populations, however, might oppose such transformative policies, particularly in Kuwait. The emirate is a constitutional monarchy and the outspoken parliament often hinders reforms to protect generous social benefits and public sector wages.

Gulf nationals have historically had an implicit right over the riches of their countries — GCC states hold some of the largest proven oil reserves in the world — and social welfare systems are the main vehicle for oil revenue distribution, governance and political stability.

In the United Arab Emirates (UAE), the idea of a universal basic income to streamline the existing social contract could encounter some resistance, said Nasser al-Shaikh, a former director-general of the Dubai Department of Finance. “I think it will be a difficult proposition,” he told Al-Monitor. “I do not see it happening overnight.”

Shaikh warned a universal basic income should also respect the values of the federation. “We never want to become a socialist country where people have everything guaranteed. And we do not want to be 100% capitalist either,” he added.

Fiscal divide

A policy note published by Steffen Hertog, associate professor at the London School of Economics, in October indicated the Arab Gulf region could be “an ideal testing ground” for innovative distributional policies such as universal basic income.

Yet the report highlights a fiscal divide among the six Arab Gulf states: Saudi Arabia, Oman and Bahrain might no longer have the “fiscal luxury” to adopt a full universal basic income, while it could be “attractive” for the UAE, Qatar and Kuwait.

“From a fiscal perspective, I think a universal basic income could be feasible in Qatar, and Kuwait to a certain extent,” said Abousleiman, adding that Bahrain may “not have the fiscal space” to do so. The island nation accepted a $10 billion bailout from its Gulf allies in 2018 and its debt is expected to reach 130% of the gross domestic product by year-end.

The World Bank Gulf country director added, “In our opinion the current social contract — consisting mainly of public employment and subsidies — is distortionary to the economy. The advantage of having a universal basic income is that it takes that distortion out.”

Driven by the prospect of generous wages and shorter working hours, most Gulf nationals prefer working in the public sector. Qatar’s Labor Force Sample Survey revealed that 87% of unemployed Qataris are “not willing” to work in the private sector.

Over the space of a few decades, the Gulf’s social safety nets ingrained unrealistic expectations in most nationals' minds that private businesses fail to satisfy. Saudi Arabia’s government departments offer salaries 59% higher than in private companies.

Increase the attractiveness of the private sector

In Doha, public support for a universal basic income would be conditioned to granting citizens benefits equaling existing ones, believes Noura al-Kaabi, a Qatari who graduated in political economy from the University of Washington in the United States.

Despite this, Kaabi, 22, told Al-Monitor that a universal basic income would give young Qataris the flexibility to consider accepting a private sector job that may pay lower wages but which could be highly relevant from a skills acquisition point of view.

The Gulf’s economic policies announced in recent years sought to increase the attractiveness of the private sector to local populations. Following a blockade imposed on the country since June 2017 by its neighbors, Qatar has encouraged economic diversification.

“I also think a universal basic income would give a lot more financial independence to women who don’t work, which I find to be very important,” Kaabi said. Roughly a quarter of Qatari women are homemakers and often financially tied to their husbands.

A universal basic income could help improve women’s rights in the region. However, it risks failing migrant workers, a transient and disposable labor force excluded from generous social welfare systems that remain the privilege of Gulf nationals.

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