Extractive Growth in the United Arab Emirates  
Thursday, September 27, 2012
Daron Acemoglu and James Robinson

In the last blog post we showed how from 1928 until the 1960s despite the ever increasing flow of oil, the Al-Nahyan family, in the shape of Sheik Shakhbut bin Sultan Al-Nahyan, kept the country resolutely underdeveloped.

But not all parts of the Al-Nahyan family agreed with this choice. In the last decade of his reign, various factions contemplated what they might be able to do with the oil money. Moreover, it was patronage and resources which cemented the power of the Al-Nahyan’s as the leading dynasty of the country, and the unity of the Bani Yas started being threatened by the lack of resources flowing to the families comprising it. Things came to a head in 1966 and Shakhbut was ousted and pushed into exile by his own younger brother Zayed bin Sultan Al-Nahyan. Afraid of the unsustainability of his brother’s model of development, Zayed launched a major program of economic modernization and infrastructure building, the remarkable results of which you can see today in Abu Dhabi.

Zayed attempted to reconcile modernization with political stability with a particularly clever strategy. At the founding of the state in Abu Dhabi in the 18th century, the Al-Nahyan’s had cemented their leadership amongst the 30 odd groupings of the Bani Yas by an elaborate system of patronage. In the 19th century this was fueled by their control over the lucrative pearl industry of the Persian Gulf and payments from the British in exchange for help in eradicating piracy. It was this system of patronage which the policies of Shakhbut had jeopardized by the 1960s. What Zayed did was to use the oil money to build the institutions of a modern state and graft them on top of the traditional system of patronage. While before the different sections of the Bani Yas got patronage, now they got ministries, or parastatals, or highly lucrative funds in charge of investing the rents from oil production. The Abu Dhabi Investment Council (ADIC), a huge sovereign wealth fund started in 1977, was given primarily to the Suwdan section of the Bani Yas to dominate. Another such fund, the Mubadala Development Corporation, was given to the Al-Bu Mahair section to control.

Throughout the state, the old tribal alliances and loyalties predict appointment and authority. Take the Al-Mazrui, perhaps the most populous of the Bani Yas sections. After the 1960s the Mazari, just like the Suwdan, occupied many important positions in the state. Yousef bin Omar Al-Mazrui was the federal minister (for the UEA) of petroleum until 1994 when he was promoted to the even more important Supreme Petroleum Council. Ghanim bin Faris Al-Mazrui was secretary general of the ADIC. Other influential members of the family were made part of the Federal National Council (the consultative parliament of the UAE), director general of Abu Dhabi National Oil Company, the list goes on. Then there is Al-Qubaisi section of the Bani Yas. They have provided members for the Abu Dhabi executive council, a federal minister of state for cabinet affairs, a director of the department of civil defense and a chairman of the Abu Dhabi municipality.

The experience of Abu Dhabi, and indeed of the UAE in which Abu Dhabi plays a dominant role (for example entirely paying for the UAE army), is another example of what we call in Why Nations Fail extractive growth. The Al-Nahyan family dominates politics and the economy (since the state dominates the economy). There is no doubt that political institutions are extractive, even if economic institutions have become less extractive since 1966. Nevertheless, the Al-Nahyan family has managed to generate rapid economic growth for 30 years while maintaining its power by brilliantly adapting the traditional political system to a modern, at least in outward appearance, state.

Our framework in Why Nations Fails suggests that this sort of growth will ultimately become unsustainable — growth in Abu Dhabi and in the Emirates cannot continue unless the political institutions become more inclusive. But there are several challenges to such a political transition. The UAE has many distinct facets. For example the fact that only a minority of the people living there are citizens, while most are guest workers, may undermine the demand for political change by the citizens because they fear simultaneously empowering the foreigners.

Article originally appeared on Why Nations Fail by Daron Acemoglu and James Robinson (http://whynationsfail.com/).
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