Recently, in the United Arab Emirates, due to the disruption in food supply chains caused by Covid-19 pandemic, a new competitive environment has been created in which the State has sought alternatives to increase non-imported food production and centralize decision making (Soubrier, 2020). This paper attempts to show how the disruption of the food supply chains has revived the State’s interest in strengthening the degree of food autonomy at a national level. The first section will examine how the new investments in food production are part of a socio-economic transformation process of diversification (Mogielnicki, 2020) in which the State plays a central role. Then, the Late Rentierism State Theory will be useful to explain the evolution of the State’s role. Finally, we will focus on the Emirati Sovereign Funds to analyze the pervasive control of the State.
The centrality of the State
In May 2020, Mohammed bin Rashid Al Maktoum, Prime Minister, Vice President of the UAE and Emir of Dubai, announced his intention to form a “more agile, flexible and faster” executive, creating a team capable of facing the many economic and social challenges caused by Covid-19 (WAM, 2020). Intending to accelerate decision-making and recovery, the Prime Minister identified the main areas of intervention: health, education, economy, food security, society and government (WAM, 2020). On July 5 2020, Mohammed bin Rashid reorganized the federal government. The Minister of State for Food and Water Security now refers to the Ministry of Presidential Affairs, a choice that highlights the centrality of the issue for the UAE. The new visions on food security are part of a significant socio-economic transformation process that has already begun (Mogielnicki, 2020). Covid-19, together with the collapse in demand and the price of oil, pushed all the Gulf monarchies to accelerate a top-down economic diversification based on massive investments, mobility of people and goods, events, strategies of a branding, financial hubs and new infrastructures (Dabrowski, Domínguez-Jiménez, 2020; Mogielnicki, 2020; Soubrier, 2020). The many Visions – such as UAE National Food Security Strategy 2021 and 2051- already planned, required significant recalibrations in terms of content and timing. The role of the State has become even more central.
The government has developed several strategies to fight food insecurity (Fischbach, 2018). A first one is represented by the amplification of the neoliberal model (Fine, Ben, Saad-Filho, 2017), according to which, for example, maximizing the profit of local farmers is the best way to maximize agricultural production. Indeed, the greater the profit of the farmers, the greater their efforts and the more risks they are willing to take. But also, as Adam Hanieh argues “Successful capital accumulation in the Gulf is very much dependent upon proximity to the state and the support of the ruling family” (Hanieh, 2020). Even before the outbreak of Covid-19, the State, to increase non-imported food production, has accelerated the support to local farms and aquacultures: through free grants of land to entrepreneurs who are willing to grow food crops; contributions of up to 50 per cent of the cost of fertilizers and technical equipment; distribution of artificially cooled greenhouses; urban high-rise greenhouses for local food production; spending also on new agricultural and fishing techniques, organic farming and sustainable fish farming ( Al Shamsi, Compagnoni, Timpanaro, Cosentino and Guarnaccia, 2018). The food’s strategies attempt to increase the degree of state self-sufficiency while expanding training, the use of technology and employment in the primary sector. The Prime Minister also announced a further state spending for national universities, in support to students specializing in technology and operational processes that can help the development of the country.
Rentier State Theory vs Late Rentierism Theory
In this process, the State has carved out for itself new specific functions, acting as an active interlocutor and carrying on a process of “State capitalism” (Ulrichsen, 2016; Kurlantzick, 2016). Indeed, the State remains the most crucial player in the national economic system and the owner of all means of production. However, as Hanieh (2020) argues “(…), one of the legacies of RST approaches is a view that private capital in the Gulf is weak and overshadowed by a strong state. This idea rests upon a dichotomous reading of State and capital (…). In reality, members of the ruling family often control large business groups in a private capacity, and they thus need to be seen as part of the private capitalist class (as well as a core part of how state power is exercised)”. The new capitalistic model is based on strategic objectives and Visions rather than on the centralization of the economy. It favours the primary and the tertiary sector, puts in place mechanisms for attracting foreign investments and economic growth based on internal production and exports. The State competes to create an economic free trade zone, favourable to investors, to reform business rules and make it a more straightforward and cheaper process. Such initiatives do not undermine the political authority of the regime, neither the centrality nor the stability of the State. In other words, it is a “business-friendly policy” that remains subservient to the state. The latter controls most of the major companies and the most critical sectors of the economy and continues to influence, at each way, top management decisions in the private sector. This is the case of the food sector; for example, state investments, through the Abu Dhabi Investment Office (ADIO), in the so-called “vertical farms” have grown (Zaki, 2019; Hilotin, 2020). ADIO launched a $100 million fund to develop four Agri-tech companies – among which AeroFarm and Madar Farms – to increase local production (Abu Dhabi Executive Council, 2020). Foreign investors have taken part in these projects, but the State’s share remains the largest one.
The UAE has known a transition from a Classic Rentier State model to a new model into whom the role played by the State is more active (and has grown with the recent crisis), responsive and supports national development. The main features of the RST theory are no longer adequate to explain the dynamics of the economic policy adopted by the State and new features of the UAE. The Rent Theory shows how the rents resulting from the intervention of the State, through its institutions, or as a result of legislation, have the effect of reducing production (Gray, 2011; Deshwal, 2017). For Bhagwati (1982), these are directly unproductive profit-seeking activities: capital is attracted to the detriment of other sectors. However, it is not the oil rent that creates these effects, but how the State intervenes in the economy (Gray, 2011; Deshwal, 2017). As for the articulation between the economic and the political level, it is asymmetrical. The RST, which comes from Political Science, is primarily interested in the political aspects of the distribution of oil and gas income within the nation through power struggles. Late Rentierism theory instead tries to explain the process of accumulation of wealth in the Arab Gulf countries. This theory, since its formulation in the 1980s, has changed over time in parallel with the evolution of the Gulf states. The countries of the region, such as the UAE, have integrated into the process of globalization and experienced a radical transformation (above all Dubai and more recently, Abu Dhabi). They launched new strategies based on their wealth and aimed at national economic and social development, to reduce dependence on natural resources through sectoral and geographical diversification. The first phase of the RST claims that the State is autonomous and that does not need to formulate an economic strategy beyond simple distribution of income. The ‘New Rentier State’ (NRS) has, on the contrary, a clear and defined economic policy, new fiscal and monetary measures, commercial plans, industrial strategies and reforms in the job market. Nevertheless, the NRS is neo-patrimonial (like it has always been), characterized by the centralization of power, maintaining and enriching the local elite who controls the means of production. Also, to maintain its legitimacy, the government has grasped the importance of appearing open to change and of responding with concrete measures to food disruption. This strategy allows the State to both keep its political status quo and to appear open to the requests of the citizens. The State implements a coherent and sophisticated set of economic and business policies. In doing this, the UAE has defined a development policy not limited to managing wealth but creating the bases for increasing social well-being.
The pandemic has shown also that in addition to the measures of economic diversification and attraction of foreign investments, another instrument is adopted by the State to support the national economy and investments in the food sector: the sovereign funds (Ayton, 2020). Understanding the structure of these funds in the UAE federal government is essential to understand the structure and strategies of investment, which are vehicles of the rulers of the two main Emirates. Abu Dhabi and Dubai hold significant power within the federal government and traditionally the Sheikh of Abu Dhabi is designated as Federal President. As Hanieh (2020) claims, the ruling class can be seen as part of the “private capitalist class”. However, the bond – between private business and the State – made the fund a tool both for redesigning the political economy of Abu Dhabi and reinforcing the influence of the political elite. So, usually the main political and economic choices are considerably influenced by the ruling families of the main Emirates, especially Abu Dhabi, sometimes resulting in a lack of transparency in decision-making processes. Same for financial institutions which suffer from a structural deficit in transparency. For example, the Abu Dhabi Investment Authority (ADIA), the central sovereign wealth fund of the Emirate, has benefited for many years from a significant level of independence from the Ministry of Finance.
The government of Abu Dhabi owns the largest sovereign wealth funds among the Gulf countries, through which the Emirate invests the surpluses deriving mainly from the sale of oil. This fund protected Abu Dhabi’s economy from the dangers of the excess of liquidity and supported economic diversification. Distribution of national wealth among citizens below form of concessions is no longer a feasible option. The Abu Dhabi government has decided to resort to sovereign wealth funds to invest excess liquidity in other financial assets and support the development of domestic sectors not related to crude oil. Since 2011 the Abu Dhabi government controls six different sovereign income management institutions each characterized from a main investment focus. Mubadala Development Company (MDC) has a significant role in the national food sector, particularly in agribusiness . Mubadala is a government-owned sovereign wealth fund established in 2002 focused on long-term, capital-intensive investments able to ensure stable financial and social benefits to Abu Dhabi. The fund often makes use of partnerships with leading companies globally to facilitate the transfer of knowledge and experience to the Emirate (Rahman, 2019). In a message published in 2008, President Sheikh Muhammad bin Zayed stressed Mubadala’s role in the process of economic diversification of Abu Dhabi thanks to the constant support of its shareholders. Mubadala, to facilitate the transfer of know-how and technology to Abu Dhabi has always preferred investments in joint ventures. However, as an active investor it influences the management of agribusinesses. As also happens in the other Abu Dhabi sovereign funds, governance and management of Mubadala are characterized by the pervasive presence of exponents of the Royal family. Five of the seven members of the MDC board are also members of the Abu Dhabi Executive Council. The Crown Prince of Abu Dhabi chairs the Board of Directors. The presence of several members of the Emirati political elite in the fund’s governance bodies strengthens the link and the coordination between the government strategy and that of the fund. The composition of the latter’s investment portfolio falls within the government development plans expressed in the Abu Dhabi Vision 2030. The historical link between Mubadala’s governance structure and the political class of Abu Dhabi is the direct result of the vital link between the creation of the fund sovereign and the offset strategy pursued by Sheikh Mohammed bin Zayed al-Nahyan. This strategy aimed to redesign acquisition contracts with foreign companies to favour the government of Abu Dhabi.
The main goal of this paper was to determine how the State’s role has evolved with the disruption caused by the pandemic. This research has shown that the reforms in the food sector are part of an economic and political project of diversification. Through this process, the State is able to consolidate its presence thanks to the resources managed by the political elite. Indeed, major investments have been made directly by the government or through Sovereign Funds. So, the analysis confirmed that, even in different sectors, the main actors who detain the financial means to ensure the economic transition are also part of the ruling class. It is not clear if the economic diversification will help the ruling class maintain its political legitimacy also in the future. However, the disruption of food supply chains tested the efficiency of this system which showed to be strong enough.
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About the author:
Born in Italy to Moroccan parents, Noura is currently a postgraduate student of Politics in the Middle East at SOAS University of London. She is interested in foreign policy, policy-infrastructure-society nexus, food security and diplomacy.