Introduction: Emergence of Arab States as Capitalists
The rise of state capitalism has emerged as a topic of growing global public and academic attention, fuelled by the virtual death of the ‘Washington Consensus’, the rise of economies such as Russia, China, and India, and—finally—the growth of sovereign wealth funds not only as national actors but also as major cross-border investors. While the means and mechanisms of state involvement in the economic sphere are varied, governments have emerged as owners of commercial assets across a range of sectors, challenging liberal economic ideologies that dispute the efficiency of states as economic actors. Far from playing second fiddle to private enterprise, some soes have become behemoths of © ALissA AMICo, 2017 | Dd 10.1163/9789004336452_007
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economic power, with 28 of the 100 largest firms globally counting the state as a significant shareholder (The Economist, 2014).
A recent survey of 34 industrialised countries, mostly OECD members, revealed that their governments collectively own 2,111 companies, valued at USD 2 trillion and employing approximately 6 million people (oecd, 2014a).1 State ownership in developing economies is even higher: whereas in the OECD area firms majority-controlled by governments are estimated to contribute 3 per cent of total market capitalisation, they represent an estimated 13 per cent of the value of listed equity in emerging economies. The scope of state ownership in the Arab world is higher than in most other developed and emerging markets, whether judged by government participation in capital markets, state ownership of unlisted firms, or other metrics.
Although data on unlisted mena SOEs is unavailable, our calculations suggest that, currently, 62 per cent of market capitalisation of Arab stock exchanges relates to firms in which sovereign shareholders have ‘blockholdings’ (10 per cent and above). In fact, of the 600 largest listed firms, accounting for 97 per cent of the region’s market capitalisation, close to 40 per cent have a sizeable number of their shares held by the state (Amico and Ozcelik, 2015). Government ownership is even more prevalent in larger firms, with governments having a considerable stake in 89 of the 100 largest listed firms in the region. While these figures are telling, they exclude the majority of state-owned enterprises, especially in strategic sectors such as petrochemicals, network industries and utilities, as they remain unlisted.
Arab governments are significant owners of both listed and unlisted commercial companies, not only in strategic sectors such as hydrocarbons, mining and minerals, and aviation but also in other, less strategic sectors. And yet, the role of the state as a capitalist in the region, as opposed to as a policymaker, has not been subject to considerable analysis. This represents a curious omission and one that is only partially accidental. Governments in the region do not publish consolidated information on their shareholdings, partly due to the fragmentation of state ownership and the difficulty of collecting data, partly due to the inherent opaqueness of state ownership in some countries. 
As a result, the mechanisms and the performance of state capitalism in the Arab world have eluded analysis, with the few existing studies focusing on privatisation experiences and their impact (cf. Omran, 2009; Haider, 2008; Haider and Dawley, 2008;). After decades of economic dogma that sought to reduce the role of the state in the economy, considering all soes as inefficient and corrupt, the tide has turned and the emergence of successful state-backed firms, notably in the Gulf countries, has prompted a reconsideration of Washington Consensus policies. The global financial crisis has further highlighted the cost of private sector failure, prompting governments to become ‘unwilling capitalists’ as a consequence of their rescue of faltering firms.
The revolutions and subsequent political transitions experienced in some Arab countries provide a useful political economy backdrop against which the performance of state capitalism can be evaluated. In particular, it appears pertinent to investigate how transitions to democratic governance models, as witnessed in Tunisia, will affect the nature and extent of state ownership. Recent events provide a rich context for examining state ownership in the region considering that soes are a long-term fixture of mena economies, many of them having been established to support nation building in postcolonial or independence periods.
In North Africa, the end of colonisation prompted governments to establish local institutions and companies to deliver basic services. In the Gulf, the roots of a number of the largest soes can be traced to the process of the forming of the states themselves, and such enterprises continue to simultaneously perform a range of regulatory, commercial and social functions. For instance, the National Bank of Abu Dhabi—today one of the ten largest Arab banks and top ten listed firms in the region—was established in 1968 to finance domestic infrastructure and also to perform central banking functions.
The emergence of governments as major shareholders followed a somewhat different trajectory in other parts of the Arab world, where it was generally delinked from the process of the formation of the state, instead being motivated by the rise of political ideologies that favoured greater state interventionism, inspired by the Soviet developmental model. This was particularly the case in Syria, Algeria and Egypt, where swaths of economic activity were brought under state control during the nationalisation process in the 1950s to 1970s.
Nationalisation of strategic assets was also a part of the story of the emergence of soes in the region, especially those in the hydrocarbon field or other strategic sectors. For instance, Saudi Aramco, originally established in 1933 as a result of an oil concession granted by the Saudi government to the affiliate of Standard Oil of California (today’s Chevron), was nationalised in 1980.
Likewise, the Kuwait Petroleum Corporation was fully nationalised in 1975, when the government acquired the remaining 40 per cent stake from British Petroleum and American Gulf Oil.
Only in parts of the Levant, notably in Lebanon and the Palestinian Authority, has the state never emerged as a significant shareholder. Even so, in Lebanon where the government owns less than 30 SOEs their impact on the state budget is estimated to be significant. Transfers to Electricite du Liban, the national electricity company, account for 20 per cent of the budget—the second largest item after debt servicing (Hasbani, 2011). Even with such considerable subsidies, the company is unable to provide uninterrupted services to most of the country and its name has become synonymous with public sector failure in Lebanon.
Despite these similarities, the evolution of SOE sectors in the region has differed in important respects. In countries that followed a statist developmental model (Egypt, Iraq, Syria and Yemen), SOEs were established in a broader range of industries. In Lebanon and Jordan, their establishment was arguably more selective. In the Gulf countries, their emergence was more gradual, only initially resulting from nationalisations and in recent years closely related to national industrialisation and competitiveness strategies.