Qatar and the Curse of the Resources

Moisés Naím / World Energy & Oil

All too often, natural resources blight economic and social development. From Nigeria to Indonesia, the Democratic Republic of Congo to Venezuela, countries “blessed” with substantial mineral wealth find themselves mired in cycles of corruption, political instability, lawlessness, and chronic poverty. Researchers call it the “resource curse,” and it’s responsible for keeping a shocking proportion of humanity living in deplorable conditions. Many recipes for sidestepping the resource curse have been proposed. Today, Qatar is attempting one exciting variant: a combination of traditional monarchy, a large foreign working class, and a stubbornly independent democracy. A world hungry for solutions to the resource curse will learn much from the outcome of its experiment.

The resource curse comes down to a problem with the incentives the government faces. In most economies, governments must tax their people to keep on the lights. That gives the rulers a stake in the people’s prosperity: the richer they are, the more they can tax them. In resource economies, that link breaks down: governments pump their revenues out of the ground, not out of their citizens’ pockets. That means rulers can prosper even as the people languish. Too often, that’s precisely what happens. But not every resource country devolves into an extractive kleptocracy. Where populations are small and governing systems stable, resource wealth can be a launching pad to widespread prosperity.

A HALFWAY SUCCESS
Take Qatar: a peninsula about the size of Connecticut jutting out into the Arabian Gulf, Qatar has become a modern cultural, financial, diplomatic, and energy power. Its energy resources make its citizens some of the world’s wealthiest. A success story, then? Well yes, but only to some extent. Qatari citizens are enviably served, certainly, but then just 1 out of every 8 people who live in Qatar is a citizen. Around half are workers from India, Pakistan, Nepal, and Bangladesh, while the rest come from, well, just about everywhere you can think of on earth.

Qatar has built prosperity by importing its working-class whole: foreign, transient and with limited rights, workers in Qatar long faced some of the world’s toughest conditions under the Kefala (labor sponsorship) system.

In its traditional guise, Kefala tightly bound workers’ right to remain in the country with service to a single employer. By massively tilting the bargaining power in favor of Qatari employers, the Kefala system became ripe for abuse. Years of ghastly headlines about construction workers subjected to grueling conditions in the kingdom’s famously merciless summer heat followed. A good many foreign workers died in the period, though the number of deaths directly related to working conditions is contested.

The traditional system could not be sustained. A major reform introduced in 2020 allows workers to switch employers without having to go back home in the interim. This is a big step forward, but not enough. Under the reformed system, foreign workers are still encouraged—though not required—to obtain a green light from their old employers before changing jobs. Labor organizations warn that this can easily turn into a system for blackballing workers: simply by denying such agreement, previous bosses can signal to potential new ones that they should steer clear of a worker. The government’s refusal to disclose how many workers have managed to switch jobs without agreement from their old employer does little to inspire confidence in the reform.

And yet, Qatar has no trouble attracting foreign workers: its USD 275 a month minimum wage remains almost four times higher than Nepal’s and around twice Pakistan’s minimum wage. An unemployment rate officially tallied at less than 1 percent shows clearly enough that there’s no shortage of takers for the jobs that build Qatar.

Most visibly, Qatar landed the FIFA World Cup 2022. It also hosts world-class global universities, cutting-edge research institutions, a thriving financial sector, and one of the most vibrant cultural tourism sectors in the region. Its start-up scene bustles with global talent. Now a major hub for air travelers, it physically connects Europe, Asia, and Africa in the most literal sense possible.

BETWEEN MODERNITY AND TRADITION
Qatari entrepreneurs are at home in the space between modernity and tradition. One company has proposed Sajdah, the world’s first smart prayer rug. Designed to enrich Muslims’ spiritual experience and help children memorize prayers, it projects the words to be prayed on its own, in-rug LED screen, and monitors your posture during prayer, gently correcting any lapses, while its connected phone app will remind you of prayer times in English or Arabic. That kind of innovation is only possible where investors feel safe. Thanks to solid security commitments from the U.S., including a large Marine base there, and to its lavishly funded military, Qatar feels as secure as a country can feel in this volatile part of the world. Its army may be small, but its diplomacy is deft and determined to maintain its independence, ensuring that, on the world stage, Qatar takes nonsense from no one.

To be sure, Qatar faces plenty of challenges. Geographically sandwiched between Iran and Saudi Arabia, it lives in the roughest of the globe’s proverbial rough neighborhoods. Built by a foreign working class that vastly outnumbers its citizens, its identity is defined by its citizens’ privileges. And juggling a high-tech start-up sector in the context of a traditional Islamic monarchy is never going to be straightforward.

Big ideas are being tested in Qatar today. Whether a traditional monarchy can sustainably sidestep the resource curse and use its gas windfall to build a thriving post-gas economy remains to be seen. So far, Qatar’s closed political system has maintained solid stability and ensured prosperity for its citizens while gradually improving conditions for its huge foreign working class. But the real test will come in the decades to come, as the world transitions away from oil and gas. Because the ultimate challenge for a prosperous resource economy consists in preserving prosperity once the resources are gone.