Interview: Mohamed Thani Murshed Al Rumaithi
How will the private sector benefit from the development budget? Might it be necessary to import expertise to ensure spending goals are met?
MOHAMED THANI MURSHED AL RUMAITHI: In advanced economies, almost half of fiscal expenditure is directed towards strategic development projects. Abu Dhabi has steadily increased its expenditure and is expected to reach international benchmarks in the near future. The existing budget is primarily directed towards infrastructure and utilities. Strong infrastructure contributes to the productivity of the economy and provides a business-enabling environment for the private sector. Apart from the positive externalities generated through projects, there is always a multiplier effect that has the capability to generate more income than what is actually generated through this Dh330bn ($90bn) fiscal stimulus.
To manage this, spending expertise is required in three primary areas; governance, education and economic management. These areas need special attention to meet the goals of this government spending. Good governance is a component of the productivity of an economy which increases the allocative efficiency of both domestic and foreign investments. Similarly, a well-developed education system can deliver a highly skilled labour force, which is a prerequisite to reaping the full benefits of these strategic development projects. In addition, this large fiscal stimulus will create many distortions in the structure of Abu Dhabi’s economy, causing inflationary pressures and labour market distortions. We need to have the economic policy tools in place to be able to offset these with minimum impact on the benefits accrued to the private sector.
How can small and medium-sized enterprises (SMEs) benefit from major development projects?
AL RUMAITHI: SMEs constitute the largest share of the private sector, so we need to ensure that they are promoted and supported. Most SMEs face formidable challenges in the early stages of their development, and we need to focus on these aspects. To ensure that new SMEs benefit from major development projects, they must be directly supported both financially and strategically to be in a better position to compete.
If we look at the best practices of countries in Southeast Asia (for example, Japan, Taiwan and Singapore) one of the secrets of their economic success has been the design of appropriate institutional frameworks for government support to the private sector, especially to their SMEs. We are adopting a similar approach by using this “embedded autonomy” approach in which the government and the private sector are on a level playing field. The government, through deliberation and coordination councils, identifies the problems and needs of the private sector and targets support to specific activities in different sectors.
The ADCCI has eight such deliberation and coordination committees through which it identifies the problems faced by the private sector. Another way to ensure the participation of new SMEs is to ensure that they are allocated a quota of the development projects, which is an often-used tool of industrial policy.
To what extent should a programme of privatisation of government assets be implemented?
AL RUMAITHI: Abu Dhabi needs to diversify its revenue base and broaden the space for participation in the creation of wealth. The government is also working on opening the door for public subscriptions in some of its large companies. However, to attain greater fiscal discipline we need more diversification of the economy.
Privatisation is welcome to some extent, but the challenge lies in increasing revenues from less volatile non-oil sources. This can only happen when we realise that a structural transformation of the Abu Dhabi economy is taking root. We are steadily moving from an oil-based economy to a knowledge-based one. We also realise that there is the need for developing a functioning bond market. It may be less disruptive to finance the budget through the sale of government bonds in international capital markets than with volatile oil receipts.
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