Economic Imperatives – Prince Turki

January 29, 2012

William Ryan | SUSRISblog

This week the 6th Annual Global Competitiveness Forum in Riyadh addressed the theme, “The Entrepreneurship Imperative.” Organized by the Saudi Arabian General Investment Authority (SAGIA), the GCM2012 featured a keynote address by Prince Turki Al Faisal on the second day of the three day event.  In his remarks he touched on entrepreneurship including the implications of risk and failure and a comprehensive examination of the Saudi and global economic environments.

Prince Turki Al-Faisal is Chairman of the King Faisal Center for Research and Islamic Studies as well as one of the founders of the King Faisal Foundation. He served as Ambassador of the Kingdom of Saudi Arabia to the United Kingdom (2003-2005) and the United States (2005-2007).   From 1977 to 2001 he served as Director General of the General Intelligence Directorate (GID), the Kingdom’s main foreign intelligence service.

Get the iPhone AppAlthough the overriding theme of his speech was entrepreneurship, Prince Turki took the opportunity to describe the current “dangerous economic times,” and his belief that the global economic crisis still has not let up. He highlighted the power-shifts in the world’s economy, citing recent economic trouble in the United States, Europe, China, and India, and advocating for “greater accountability and sharing of responsibility.” Other main points include Islamic finance, education, youth, and rejuvenating entrepreneurship and creativity inside the Kingdom, as expressed in this excerpt from these keynote remarks:

“Hearing the words entrepreneur and entrepreneurship, one usually thinks of business and businessmen who are taking risks by investing in transforming new ideas, new innovations, and new knowledge to make products that create personal and national wealth. This may be one meaning of these words but if we look into all great achievements in all fields, throughout history, we will find that they exhibited, perforce, entrepreneurial spirit that combines vision with risk taking. The entrepreneurial spirit is the drive for progress and success in all fields not only in the fields of business and money making or the economy.  Saudi Arabia today is a stable and rich country and has all the means to advance further. However, we need to reinvent the entrepreneurial spirit that was part of our culture and that is essential to build a solid base for our progress.”

Lastly, Prince Turki turned to the “one great challenge” of concern to all Saudis, the necessity for “absorbing the millions of young people into our national economy which is part of a truly global economy.” He said failure here would threaten all of Saudi Arabia’s great achievements and was not an option.

“How to prepare and train them to be competitive in such an economy that is absorbing almost eight million foreigners? Competitiveness depends on the creativity and innovative capability of people and these depend to a large extent on the quality of education and training and entrepreneurship.  It is the Kingdom’s firm policy that only through education can our people achieve their rightful place in the world and contribute to the betterment of humanity. Therefore, Saudi Arabia is striving to improve the quality of its primary, higher, and vocational education. A high percentage of the national budget is allocated to education. Twenty five percent of this year’s national budget, the largest in Saudi history, is for education.”

Today we provide for your consideration Prince Turki Al Faisal’s keynote adress at the Global Competitiveness Forum in Riyadh.

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HRH Prince Turki Al Faisal
Global Competitiveness Forum
Riyadh, Saudi Arabia
January 23, 2012

Ladies and Gentlemen,

Turki Al-Faisal

I thank SAGIA for inviting me to address this august gathering. To be among such accomplished high I.Q. and mega fortune owners is not only a daunting task. It is also an intimidating one. I am neither a businessman nor an economist. When I was growing up I did not come across words like entrepreneurship. Competitive referred to an athlete. I learned the word enterprising, as in he or she is enterprising – meaning inventive – which is now referred to as innovative. Success was a measure of enterprise. So, please forgive me if I lapse into using words that mark my age.

I owe this presentation to three organizations: Arabia Monitor, Rockpoint, and the King Faisal Center for Research and Islamic Studies.

As we enter this new year with faint hopes of global economic recovery and of a path to stable, sustainable growth, what is the state of the world today, and how is it different from the aspiration to reform the World Economic Order that accompanied the birth of the G-20?

If you recall, one of the key responses to the financial crisis in 2008 was the formation of the Group of 20 Finance Ministers and Central Bank Governors that we have affectionately come to know as the G-20. But what is it, exactly, and what can we learn about competitiveness – both as between nations and as individuals – in dangerous economic times like today by examining the G-20 more closely?

Today, only a few years removed from the initial shock to the global financial system, the world is still quite a fragile place. The crisis has almost certainly not run its full course. The US economy is anaemic at best, Europe is still on a fairly steep downward slope, there is talk of a bubble in China, and even India is having some difficulties.

Debtor developed countries that can print money, such as the US and the UK are, at best, able to spread out their deleveraging, resulting in slow, fragile growth. Debtor developed countries that cannot print money, namely the EU periphery, are entering deflationary cycles. Creditor emerging countries, led by China, cannot stop printing money and are seeing cracks in their debt bubbles and slower growth rates.

The financial crisis and Great Recession were born in the West, developed in the West, yet hit hard throughout the world, highlighting the importance of better representation in global economic governing bodies like the G-20 and the Financial Stability Board, going forward with a view towards re-arranging powers, and ensuring greater accountability and sharing of responsibility.

In today’s global economy, interconnectedness has become more accentuated than ever, and new mechanisms of financial governance are in motion, following the greatest global economic crisis since the Great Depression. The solution lies in a going back to the basics – in adopting a simpler approach that keeps borrowers and lenders truly connected to the real economy – something that allows the world to truly assess the risks involved and return the global financial system to a more sound footing. But this new economic order is yet to be appropriately reflected in existing economic governance structures. Efforts have been made, most notably through the on-going process at the International Monetary Fund that will aim to shift voting shares toward dynamic emerging market and developing countries, which is commendable, yet much more remains to be achieved. The IMF will look to play a larger role within the global economic system, in light of the recurring difficulties and slowing global growth. This will likely require a major increase in its lending resources, which is only possible with the assistance of large emerging market economies, including China, India, or Saudi Arabia, which have the resources to back a further increase at a time when developed economies are on the brink of a renewed recession. What we can be certain of is that large developing nations will not agree to provide additional funds without a greater say in the IMF’s affairs, and this applies to all global economic governance organizations. The combined size of the world’s seven largest developing economies will surpass the size of G7 economies in 20 years. Power is shifting, preferably gradually, while the mechanisms this institution has set up for greater congruence in international financial governance, such as the Financial Stability Board, have yet to take these new realities into consideration. Today, how will capital exporters, Saudi Arabia included, be included in this greater congruence, and what new governance mechanisms will ensure more balanced global growth? No new regional order will be enough, as the whole world slips toward deflationary contraction while central bankers are attempting to reflate their economies; central bankers in the weakest economies continue to ease monetary policy the most, while those in the strongest economies are easing only slightly.

After nearly 60-years of leveraging up post-WWII, the US and EU, which comprise 52 percent of world GDP, will remain in a deleveraging trend for the next 5-10 years.

Ladies and Gentlemen,

Despite a more resilient growth trajectory after 2008, emerging Asia remains an export-driven economy with high dependency on the US and EU, with Chinese exports to the two accounting for 38 percent of GDP. Inflationary pressures from increasingly high food and energy consumption also affect this region.

But the bigger challenge remains at the level of global cooperation, in how to create a level playing field through bodies like the G-20 whose role going forward will be paramount, but whose impact today is virtually non-existent despite the lofty ambitions with which it was launched.

The true test of a brave new world will be the manner in which we move from the unipolar political and economic order that reigned till the eve of the Great Recession, to the multipolar structures required to mitigate new pressures from the shift in the engine of growth back to the East, where it used to be 200 years ago. From our part of the world, here at geographic mid-point of this shift, it is incumbent upon us to do what we can to secure our future and stability as we navigate the turbulence bound to come with further tectonic shifts in the global order.

We shall and can start to do things better.

Creditor frontier markets, amongst them the GCC, have not been immune to the global financial crisis, experiencing their own pockets of deleveraging and delayed investments, but have by and large stayed the course in pursuing their planned industrialization and diversification processes. Some, like Saudi Arabia, have accelerated it. Why were we successful? Our technocrats and financial wizards were trained in the West and absorbed most, if not all of the Western models of managing economies. By basing our financial structures on sound principles, we have been able to live within our means and not get entangled and dragged down in the overleveraging experienced by the rest of the world, basic “Economics 101.”

Our success and resilience, I believe, is due in large part to the Kingdom’s culture of Islamic finance — most notably Islam’s insistence on debt being tied to real equity and real assets: a genuine connection between risk and reward that enforces participants to maintain reasonable levels of leverage. The same technocrats and wizards who absorbed Smith and Keynes and even Marx were also driven by their innate Islamic background to be wary of greed and gambling. Some did manage to game the system, of course, and they ended up suffering the same fate as Wall Street. But not dissimilar to political strains elsewhere, the Arab region faces its own backlash – one likely to change the status-quo of yesteryear’s policy structures across the region, especially our mechanisms of intraregional political, security and financial coordination. But what role will smaller, emerging economies play in this new economic order?

The GCC remains largely an oil-driven economy. 2012 break-even oil prices are just 20% away from current crude prices. As such, our focus will be on developing our domestic economies, increasing intra-regional trade alongside domestic demand in neighboring economies, and improving primary & secondary education with a focus towards math and sciences so our youth can better meet the challenges of more competitive labor markets.

The manner in which the GCC manages all of the above will perforce evolve now, and people must not be surprised if they see us do things differently. We are redoubling efforts to evolve the GCC by taking it from a body for cooperation to a body for unity and coherence in policy at all levels. As we witness a re-organization of this scale, and given a number of regional and global factors working to our advantage, Gulf countries will be called upon to take a greater role in global financial organizations, through greater representation and involvement in world financial affairs. Better surveillance of the financial system, regulatory reform, and the re-instauration of market discipline will prove elusive if emerging economies, the GCC included, are not adequately represented within these important yet developing institutions. This is inevitable, and only fair when the past few years and will continue to play in the coming years.

Our region very much ties in with this process, and will be called upon to play the role its size and importance require in some of the world’s most important markets. This goes far beyond oil production: The Saudi Arabian Monetary Agency, as an example, currently holds US $650 billion worth of overseas assets, of which some US $360 billion are held in foreign securities. The majority of the latter are US treasury bills. Banks in Saudi Arabia also have considerable holdings of US treasuries. These are today part of what underpins the stability and valuation of the US dollar, and of the global economy more broadly.

We will continue to support our neighbors where we are able, including financially, but now we also face new exigencies of our own. As such, we will look for more effective deployment of intra-regional financial assistance, and we will scrutinize more carefully the operational rigor of regional multilateral organizations, as we continue to enable them to carry out their mandates. The Arab Monetary Fund and our various development funds, including the Islamic Development Bank, must be revitalized and brought to the fore in meeting the challenges of tomorrow in our region, while the functioning effectiveness and international credibility of the Arab League are increasing.

Ladies and Gentlemen,

Prince Turki Al-Faisal during an interview in his office at the Saudi Embassy in Washington in 2006. (Photo: SUSRIS)

I know that my reference to Islamic finance is toxic to some of the audience, including some of those technocrats and wizards that have imbued Western ideas and even modes of dress. I tell them – open your minds to thinking out of the box. Now, I turn to specific examples of enterprise, or entrepreneurship, if you like, from my country.

Hearing the words entrepreneur and entrepreneurship, one usually thinks of business and businessmen who are taking risks by investing in transforming new ideas, new innovations, and new knowledge to make products that create personal and national wealth. This may be one meaning of these words but if we look into all great achievements in all fields, throughout history, we will find that they exhibited, perforce, entrepreneurial spirit that combines vision with risk taking. The entrepreneurial spirit is the drive for progress and success in all fields not only in the fields of business and money making or the economy.

Saudi Arabia today is a stable and rich country and has all the means to advance further. However, we need to reinvent the entrepreneurial spirit that was part of our culture and that is essential to build a solid base for our progress.

It is worth mentioning that this kind of spirit is behind unifying our country and it is what made Saudi Arabia of today. King Abdulaziz, the father and unifier of this country, was a young exile with his father in Kuwait in the late 19th century and all odds were against him and against any adventure to retake his hometown and to restore his family rule that was lost a few years earlier. He knew what he wanted and took the risk in 1902 to lead a band of his loyalists and to cross the desert to Riyadh, a small town then, where we meet today. He succeeded in his initial goal, but he also, with the same spirit, worked hard for thirty years to unify most regions of Arabia. Like most entrepreneurs, he had the ability to see opportunities in his environment and exploited them to create something new and something better. His enterprise grew because he enfolded his erstwhile competitors in his vision and included them in its benefits. By 1932 the Kingdom of Saudi Arabia was established.

Such great spirit was a reflection of an indigenous entrepreneurial culture that existed in Arabia for centuries. The people of Arabia were able to survive all natural hardships of living in an arid land and a barren desert and without governments or institutions to manage their affairs. This would not have happened without the ability to exploit and create the means to survive or to continue living in such a harsh environment. What Abdulaziz added was the vision which at last, was rewarded by having a central state endowed with wealth, prosperity, and wise leadership.

Ladies and Gentlemen,

By now, you probably have heard all the statistics about the Kingdom. I forego all these facts and numbers, which are quite telling. However, one great challenge concerns all of us in the Kingdom, and it needs to be addressed. Failure in tackling this challenge properly will threaten all our great achievements, and this must not be an option.

Ladies and Gentlemen,

The society in Saudi Arabia is one of the youngest societies in the world, with some 75 percent of the population under 30 and 60 percent under 21. Therefore, the challenge is how to succeed in absorbing the millions of young people into our national economy which is part of a truly global economy? How to prepare and train them to be competitive in such an economy that is absorbing almost eight million foreigners? Competitiveness depends on the creativity and innovative capability of people and these depend to a large extent on the quality of education and training and entrepreneurship.

It is the Kingdom’s firm policy that only through education can our people achieve their rightful place in the world and contribute to the betterment of humanity. Therefore, Saudi Arabia is striving to improve the quality of its primary, higher, and vocational education. A high percentage of the national budget is allocated to education. Twenty five percent of this year’s national budget, the largest in Saudi history, is for education.

When my country was unified Under King Abdulaziz in 1932 there were no universities; there were not even primary, secondary, or high schools. Children were taught in the ancient, traditional methods. Their blackboards were the sandy earth they sat on, and their pens and pencils were twigs that they broke from the dry bushes that made up the only vegetation in the harsh and scarce desert geography. The teacher, who was always the imam of the local mosque, because he was the only one who could read and write, carried the only text book that made up the curriculum, a worn out and tattered copy of the holy Quran. He also taught them numbers and rudimentary maths; one plus one equals two; and one thousand was the highest number that they counted.

Ladies and Gentlemen,

You have heard from others before me all of the facts about the Kingdom’s leap into the 21st century and the educational programs to lead us to the next. I will not repeat them. But the spirit of enterprise has touched a wholly new sector of education. Private university education has now become a mainstay of Saudi higher education. I am proud to say that the first privately funded women’s university was established by my late mother, God rest her soul, and carries her name, Effat University. I am equally proud to say that the first privately funded undergraduate university, dedicated to science and medicine, was established by the King Faisal Foundation and carries the name of the late King, God rest his soul, Al Faisal University. This university is the second fully co-educational university in the Kingdom.

Ladies and Gentlemen,

All these achievements would not have happened without an entrepreneurial spirit on the side of Saudis. However, the challenge of dealing with our youth is persistent.

Reviewing our economic and educational policies is not an option. It is an imperative. The well-being of our people is the real objective of our statecraft. In the process, fostering entrepreneurship is the ultimate priority. This very forum is the culmination of work by SAGIA that is entrepreneurship par excellence. I am privileged to be a part of it.

Thank you.

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HRH Prince Turki Al Faisal Al Saud

Turki Al-Faisal

Prince Turki is Chairman of the King Faisal Center for Research and Islamic Studies and is one of the founders of the King Faisal Foundation. He served as the Ambassador of the Kingdom of Saudi Arabia to the United States of America from September 13, 2005 until February 2, 2007. He also serves as a member of the Boards of Trustees of the International Crisis Group and the Oxford Center for Islamic Studies and is co-chair of the C100 Group, which has been affiliated with the World Economic Forum since 2003. Prince Turki was appointed an Advisor in the Royal Court in 1973. From 1977 to 2001, he served as Director General of the General Intelligence Directorate (GID), the Kingdom’s main foreign intelligence service. In 2002, he was appointed Ambassador to the United Kingdom and Republic of Ireland by then Custodian of the Two Holy Mosques King Fahd bin Abdulaziz.

Born on February 15, 1945 in Makkah, Saudi Arabia, Prince Turki began his schooling at the Taif Model Elementary and Intermediate School. In 1963, he graduated from the Lawrenceville School in Lawrenceville, New Jersey and subsequently pursued undergraduate studies at Georgetown University in Washington, D.C.

The King Faisal International Prizes, awarded by the King Faisal Foundation, are presented to “dedicated men and women whose contributions make a positive difference.” These annual prizes, which are awarded in five fields of endeavor – Service to Islam, Islamic Studies, Arabic Language and Literature, Science, and Medicine – have been likened, for the Arab and Islamic worlds, as similar in stature to, and nearly as coveted as, the more renowned and longer established annual Nobel Prizes. The King Faisal International Prizes, in addition to being bestowed upon Arabs and Muslims, have been granted to outstanding achievers from virtually all corners of the world.

For more information: www.kff.com

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Related GCM Material:

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By and About Prince Turki Al-Faisal on SUSRIS:

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