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The GCC Summit in Perspective: A Conversation with John Duke Anthony
Editor’s Note:
The most recent annual gathering of the highest ranking decision makers and policymakers of the six GCC countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates — convened at a time of unusual international interest in what was examined most and what transpired. Like all the previous GCC summits dating from the founding one in 1981, which also took place in Abu Dhabi as did this year’s summit, a broad spectrum of issues was covered. National Council on U.S.-Arab Relations President Dr. John Duke Anthony, as has often been the case in the past, was the only American present as an invited guest for the occasion. In addition to his perspectives on the GCC Summit Dr. Anthony also shared his insights on the UAE’s financial health picture based on discussions with officials in Abu Dhabi and his decades of experience in the region. We thank him for taking time from his very busy schedule in Abu Dhabi to talk about these developments here and look forward to discussing these important issues further with him in ArabiaLink after his return to Washington.
ARABIALINK EXCLUSIVE
Annual GCC Ministerial and Heads of State Summit in Perspective: A Conversation with John Duke Anthony
[ArabiaLink] It was little over a year ago when regional as well as global economic and financial market analysts were fixated on the UAE Emirate of Dubai. The concern was that the decades-long dizzying nature, pace, and extent of the emirate’s boom fueled in part by a degree of real estate speculation that eastern Arabia and the Lower Gulf had never previously witnessed, had come to an end. How has the UAE weathered the situation?
[Dr. John Duke Anthony] One thing many foreign analysts overlooked or failed to realize in the case of Dubai was that its economic dynamism historically has not been rooted in matters pertaining to real estate. Rather, for more than a century it’s special niche has always been its robust volume, efficiency, and profitability in something else. Or as a longtime Dubayyan friend jokingly shared with me in the past year, “More than anything else we have longest been interested in, and become and remain quite successful at, are three categories of endeavor. One of these is trade, trade, and trade. Another is business, business, and business. And the third is commerce., commerce, and commerce.”
This being the emirate’s main economic raison d’etre, one should not be surprised that while of course the real estate sector was hit hard and will take some time to recover, the other sectors of its economy remained relatively strong, so much so that its published and projected GDP in the coming year is excepted to grow 4.6 per cent.
As to the UAE as a whole, economic and financial managers involved in one way or another with the summit were surprisingly far more upbeat than twelve months ago one might have imagined. In a meeting on the summit’s sidelines, UAE Central Bank Governor General Sultan Nasser Al-Suwaidi was at pains to emphasize to others and me how not only the country’s overall economic situation but in particular the health of its banking sector was on the rebound. As illustrations, he made several points. Of interest is that no one questioned his facts.
[ArabiaLink] Which were .. ?
[Anthony] Evidence that the worst effects of the recent international financial, credit, and liquidity crisis have bottomed out, he said, is that UAE banking system deposits have continued to grow from $930 billion dollars in 2009 a year ago — up 130 billion dollars this past October alone. That the system’s customers have not only maintained but added to their deposits, he argued, is itself a sign of a healthy recovery underway much earlier than many would have expected.
[ArabiaLink] Was this the only indication the Governor General offered in support of his analysis? Couldn’t one say the same with regard to Bahrain’s older and better known niche, especially its offshore banking system, within the GCC countries’ banking systems or the financial markets in Saudi Arabia?
[Anthony] No, this was but one of his points. Among others he indicated that the number of UAE banks over the past year has not diminished but continued to grow, albeit at a rate less than before. Indeed, he said there are presently 24 foreign-owned banks, 23 are owned by UAE nationals, and, in contrast to two decades ago where there was but one GCC bank, there are now six, for a total of 53 banks, three of which are wholesale banks. On top of this are the Abu Dhabi Investment Authority, Mubadela, and several other state owned investment funds that increase the UAE’s sovereign wealth holdings which, even before the crisis, were by far the largest in the so-called developing world comprised of 140 countries.
[ArabiaLink] The number of banks is one thing; what can one say about their assets?
[Anthony] Suwaidi said that “the UAE banking sector’s assets presently stand at 1.6 trillion dirhams, or roughly 450-460 million dollars, which, for comparison, is slightly larger than the size of the holdings in the Turkish banking system. Certainly within the Arab world, the UAE is second to none in the value of its bank’s assets, capitalization, and reserves. In addition, loans continuing to grow steadily, at 1.28 trillion DH, or $350 billion dollars.” [The UAE's monetary exchange rate is 3.67 per U.S. dollar.]
[Anthony] But what about reports one periodically hears about GCC country concerns about the U.S. dollar?
[ArabiaLink] Suwaidi was quick to address this question. As to the wisdom of the UAE and other GCC countries continuing to peg their currencies to the U.S. dollar as the principal unit of exchange for their international financial transactions, he made it clear that the UAE and its fellow GCC member states have entertained no serious reservations thus far.
[ArabiaLink] Did he offer any hard evidence in support?
[Anthony] Yes. He indicated that there is as yet no serious replacement on the horizon. Only two currencies, the Japanese yen and the Chinese renminbi, can be considered as possible competitors in the distant future. For now, though, the significance of each as a financial instrument of trade is limited primarily to the Asian regional context in which their economies are mainly situated. The same, he indicated, can be said of the Euro. “In contrast, the dollar is the medium of exchange not only for sixty to sixty-five percent of the UAE’s international trade. The dollar is also what we use in the lion’s share of our inward and outward foreign investments, our purchase of foreign debt instruments, and our deposits in other countries’ financial institutions.”
One additional point that Mr. Al-Suwaidi did not mention but might have had he been asked is that, on a per capita basis, the UAE has climbed in the past few years to the first or second position in the Arab world as the largest purchaser of advanced American-manufactured military equipment and systems. The sales thereby generated in the course of expanding the UAE’s external defense capabilities — in essence, the country’s strategic reassurance — is also denominated in dollars.
He could not have been clearer in emphasizing that, barring the unforeseen, these trends and indications are likely to continue far into the future.
[ArabiaLink] But aren’t critics correct that it was less, only, or mainly a question of something else? For instance, wasn’t it the strength or weakness of the U.S. dollar and the timing of the American financial crisis that impacted the non-oil components of the UAE’s and other GCC countries’ economies negatively beginning two years ago? Wasn’t it that rather than intra-regional real estate speculation and other risky investments?
[Anthony] Suwaidi’s views on this point were illuminating. While not pointing fingers at specific actors’ policies, he did say that presently no more than twenty per cent of UAE bank deposits can be used as loans for real estate purchases versus Singapore and Hong Kong, where banks can loan a much higher percentage.
[ArabiaLink] Other than these insights into the UAE’s and other GCC countries’ banking and financial dynamics, what other factors help to explain the resiliency and growth of their economies vis-à-vis the United States and much of the rest of the world?
[Anthony] Among the more obvious, of course, is the continuing high international demand for the GCC member-states’ energy exports. The current $90 cost per barrel of oil, and the accompanying strong revenue inflow, makes all the difference in the world.
[ArabiaLink] Where does defense cooperation among the GCC countries themselves, on one hand, and with their principal strategic foreign partners fit into this equation?
[Anthony] It fits directly, massively, and pervasively.
[ArabiaLink] Meaning what?
[Anthony] It’s reflected in the UAE and other GCC countries’ strategic decision to invest heavily in the near and longer term protection of what they have built and accomplished, on one hand, and the heightened security, stability, and levels of prosperity they seek to achieve and maintain in the future, on the other. Evidence of how seriously they are pursuing this objective can hardly be clearer.
[ArabiaLink] How so?
[Anthony] In the week before the summit convened, the annual International Institute of Strategic Studies Annual Bahrain Security Dialogue was held in Manama. U.S. Secretary of State Hillary Clinton, accompanied by a large entourage, addressed it. So did UAE Minister of Foreign Affairs HH Abdalla bin Zayed. So did the UK Undersecretary for Defense. So did high-ranking officials from France and many other countries.
Only two days before the GCC summit began, U.S. Secretary of Defense Robert Gates visited Muscat to brief Omani Sultan HM Sultan Qaboos on Iran, Iraq, Afghanistan, Pakistan, and other defense challenges and issues of mutual interest and concern. And simultaneous to the convening of the GCC summit itself, the Dubai-based Institute for Near East and Gulf Military Affairs held a two day conference in Abu Dhabi that was addressed by US CENTCOM Commanding General James Mattis and UAE armed Forces Deputy Chief of Staff General Kaabi. That there were 600 attendees at this conference held in the same city as the GCC summit at the same time is something that, in terms of logistics and operational dynamics on one hand, and the involvement of the requisite GCC country personnel to be involved in all three of these defense and related events in such a short space of time, on the other, is, in my experience, unprecedented and attests to the seriousness with which these issues are being addressed.
[ArabiaLink] What’s driving this? Can you cite some examples?
[Anthony] Several forces and factors. For starters, consider where the GCC countries are located situated, that they possess massive amounts of the fuel — forty per cent of the world’s total — that drives the engine of global economic growth, and the defense-related requirements associated with the neighborhood in which they are situated. One need only cite the potential threats to their security and stability stemming from the many uncertainties stemming from their more populous and militarily experienced as well as geographically larger neighbors of Iran, Iraq, and Yemen, not to mention their “near abroad” proximity to the seemingly endless violence linked to ongoing conflict in Afghanistan, Pakistan, and the Arab-Israeli conflict.
Consider also their enormous expanse of air and sea corridors that, like the waist of an hour glass, lie at the interface of three continents — Asia, Africa, and Europe; that lying within their midst are Makkah and Madinah, the two holiest places in Islam, the fastest growing of the world’s faiths; and that this region is also adjacent to the birthplaces and holiest sites of the two other monotheistic beliefs, Christianity and Judaism.
Not so as much of the American media would seem to indicate, and not to make too much of it, but metaphorically speaking these aspects and attributes alone are hardly of marginal meaning. Indeed, far beyond the stereotyped images of this region being synonymous with energy and money, the GCC countries and adjacent lands can at times be likened to a congested intersection, the traffic jam of the devout, and the epicenter not only of prayer and pilgrimage but also faith and spiritual devotion for half of humanity.
[ArabiaLink] What do you say to critics that might find such observations as a bit exaggerated?
[Anthony] I don’t know. I suppose that the validity of any observations is in the eye of the beholder. If one is trying to be dispassionate, clinical , and objective, whether a particular observation is accurate, understated, or wide of the mark is likely also to be determined by the context, background, and perspective of how one considers and analyzes something. Certainly, different observers and analysts tend to view reality differently according to their perspective — like flowers, finger prints, and snowflakes, no two are the same.
This said, what I do know is what my GCC friends, acquaintances, and interlocutors continuously assure me to be the case. This is that none of the considerations I have cited are fanciful. All are real.
[ArabiaLink] If, for the sake of argument, one were to concede that your sources’ observations have merit, what are the implications for the GCC countries’ interests and key foreign policy objectives?
[Anthony] The implications are several. For one, were the GCC summiteers whether in concert, separately, and/or in association with their Great Power allies not to do their utmost to strengthen the member-states’ respective defense capabilities would be disastrous — it would be feckless and tantamount to gross ineptitude. Stated differently, were the member-countries and their foreign strategic partners not to work continuously to protect what they have jointly built and accomplished here has never been an option.
Viewed yet another way, were the intraregional and their external strategic partners to fail to do whatever is necessary to defend their respective acknowledged interests and the legitimate needs of their people — were they not to commit to preserve what they have jointly achieved for posterity, and in trust for themselves and future generations here and the world beyond, would arguably be the height of folly and dangerously irresponsible.
[ArabiaLink] And this is among the information and insights you have gleaned from your observations and discussions with individuals attending this particular summit?
[Anthony] Yes. But it would be a mistake to imply that this is something new. It is not. Indeed, the GCC members’ strategic objective of strengthening their defense capabilities has been a constant since the organization’s inception in May 1981. From then until now, virtually everyone with whom I have spoken has deemed this goal as absolutely necessary and prudent. This has been the case not just in the plenary session and the numerous side meetings that take place at this and every other GCC ministerial and heads of state summit. Since the founding summit which was also held in Abu Dhabi, it has also been the case in the largely underreported yearly meetings — parallel to but by design less frequent and deliberately always outside of the GCC’s annual summit framework — of the GCC countries’ ministers of defense and their armed forces chiefs of staff.
[ArabiaLink] So, on balance, what’s one to make of this that Americans and others need to know?
[Anthony] What to emphasize most is perhaps the greatest challenge. That said, one could begin with the reciprocally rewarding economic and defense cooperation between the GCC countries and friendly outside powers since the GCC’s inception. For example, in the first of the three wars that have affected the GCC’s national security and related interests directly — the Iran-Iraq war from 1980 to 1988 — the GCC countries hosted the armed forces forward-deployed detachment of two dozen Western expeditionary armed forces. That in itself was a first in the history of modern Arab-U.S. relations.
[ArabiaLink] Can you summarize what was so special about that and what, if anything, has been the after-effect?
[Anthony] One can credit the internationally concerted action that took place then with three GCC-Western world strategic successes.
First, preventing the Iranian revolution from spreading to the GCC region.
Second, GCC-Western and primarily American cooperation in obtaining, in the form of a unanimously passed UN Security Council Resolution 598 of July 1987 that finally led to Iran accepting a ceasefire to the conflict.
Third, albeit less well known outside the region then or subsequently, the considerable and multifaceted cooperation between GCC member-state Saudi Arabia, the United States, and Afghanistan resistance fighters in ousting the former Communist Red Army from Afghanistan, thereby hastening the collapse not only of the half-century Cold War but also of the Soviet Union and its imperial hold on eastern and central Europe.
[ArabiaLink] Was that mainly a “one-off” non-recurring strategic success?
[Anthony] No. What it did was provide a deeper and more broad-based foundation of cooperation than existed before, which proved to be vital in terms of what followed. That is, following the reversal of Kuwait’s invasion and occupation by Iraq in 1990-1991, four GCC-U.S. Defense Cooperation Agreements were forged. These, added to the earlier 1980 Oman-United States Access to Facilities Agreement, provided a strategic underpinning to GCC-U.S. strategic military cooperation unmatched between the GCC countries and any other power that has been ongoing to this day and, indeed, remains the cornerstones of GCC-U.S. defense cooperation overall.
[ArabiaLink] Even so, how does that play in the current strategic military environment?
[Anthony] It figures in several ways. Take, for example, what I said earlier about the fact that within the same period in which the GCC summiteers have gathered together here in Abu Dhabi, some 600 GCC, American, British, French and other renowned military strategists have gathered for a two-day meeting elsewhere in the same city at the exact same time, which is something that as recently as a decade ago, would have been unheard of.
These arrangements have arguably constituted a degree of international “strategic reassurance.” Note the use of this carefully-crafted phrase instead of the more provocative – to Iran, for example – terminology associated with what many American strategic and defense analysts have traditionally referred to as “containment” or “deterrence.” The net effect of such GCC-U.S. initiatives has made a big difference in the overall levels of GCC and U.S. trust, confidence, and competence ever since. In addition, what many have forgotten is that the GCC countries have picked up most of the tab for the arms and systems purchased for their defense.
[ArabiaLink] What, if any, are the lessons from this?
[Anthony] They’re twofold. One is that few if any less developed countries countries benefiting from an American defense umbrella have been able to accomplish anything comparable. Two is that the GCC countries’ overall military weakness against their larger and more powerful neighbors has been compensated in part by their substantially greater ability and willingness to cover the financial costs of their defense.
[ArabiaLink] In terms of benefit to the United States and GCC host country partners, what’s the bottom line?
[Anthony] The impact can hardly be overstated. Certainly, one benefit has been what few if any other countries are in a position to do. That several GCC countries can pay for such a large portion of what it costs to defend them is hardly a matter of small moment. Indeed, for a country to be able to finance most of its defense costs may be as important as however many weapons there may be in its arsenal. Likewise, having such an asset and being able and willing to use it when needed can arguably be as important as other key factors in determining how many citizens can be mobilized and deployed in defense of a country or countries against a much more numerous, battle tested, and armed adversary. Lest one question this, probably any other country than France or the United States would likely be hard pressed to do something similarly effective in Arab North Africa, the Nile Valley region, East Africa, and/or the Levant and Fertile Crescent regions.
Dr. John Duke Anthony is the founding President and Chief Executive Officer of the National Council on U.S.-Arab Relations. For the past 35 years, he has been a consultant and regular lecturer on the Arabian Peninsula and the Gulf for the Departments of Defense and State. In addition to heading the National Council on U.S.-Arab Relations, consulting, and lecturing, Dr. Anthony has been an Adjunct Professor at the Georgetown University School of Foreign Service’s Center for Contemporary Arab Studies since 2006.
