The future of Gulf economies
بقلم: Al-Hayat (Pan Arab) نشر ديسمبر 5, 2013
The Gulf Cooperation Council (GCC) will hold a summit in Kuwait on Dec. 10-11 to study an agenda full of political and economic items. There is no doubt that the events that took place this year are seen as both opportunities and challenges.
For instance, there is the principled consensus between the major powers of the world and Iran about reducing Tehran’s nuclear energy so as to prevent it from using it to build weapons. Should things work out according to the major countries’ discretion, Iran will be freed from its economic sanctions within six months. This means that Iranian oil will once again flow in world markets and supplies of oil will increase, at a time when shale oil and shale gas supplies are flowing, especially in the United States and Canada.
Will this mean a decline in oil prices over the coming few years and thus a decline in the revenues of Gulf countries? There is no doubt that this concern is now a high priority for officials in the Gulf states. This is especially true since the reliance on oil revenues has become structural. Moreover, the possibility of diversifying the sovereign revenue base so as to meet the obligations of current spending and investments remains uncertain, without resorting to unconventional measures or adopting mechanisms to finance the deficit experienced by these countries during the 1980s.
The Gulf states will remain the most important oil-exporting countries, as their exports are estimated at 20 million barrels per day, which constitute 24% of total global production. Moreover, these states have the largest reserves of oil, at least so far. Their reserves are estimated at 495 billion barrels, which represents 30% of the world’s oil reserves.
The cost of oil production in the region’s countries is considered to be the lowest globally, as it ranges between $5 and $7 per barrel. These facts highlight the heavy dependence on oil and its impact on the course of these countries’ economies. This is especially true since the rates of economic growth in all of the Gulf states have become limited to the performance of oil markets.
However, this means that the Gulf countries have become economically affected by the supply and demand in the oil markets. Despite the concerns of the transformations that might take place in oil production and the increase of shale oil and gas production — which could lead to a decline in oil imports in important consumer markets such as the United States and possibly other markets — officials in the Gulf countries assert that the bulk of oil exports to these countries are directed toward Asian markets, which absorb 55% of the Gulf exports.
Meanwhile, the United States imports 11% of these exports and the countries of the European Union receive 7%. Despite the concerns that the Iranian oil exports might return to their traditional levels — equivalent to over 3 million barrels a day — within a year, or that Iraq could improve its production and export abilities to go beyond the current levels, many officials in the oil production industry in the region asserted that production and exports are on the rise. Moreover, they confirmed that the efficiency of this sector among the GCC countries has also improved in a way that allows them to enjoy the flexibility to address any challenges or competition from the other producing countries in traditional markets.
The leaders of Gulf countries are facing structural economic conditions that have built up over the past seven decades and that have enhanced the role of public spending mechanisms and tools, and worked for the state’s prevalence over the different facilities and vital sectors. Although the role of the state in the region’s countries differs from one country to the other, it is still pivotal for the economic process. Above all that, the social commitments are growing annually at high rates of no less than 10% in any of the Gulf countries thanks to the current spending tools.
The economic agreements adopted by the Gulf leaders during the past years are still far from being completely applicable. These agreements comprise the Customs’ Union Agreement, the GCC Common Market Agreement and the Monetary Unity Agreement. There may be obstacles impeding their implementation. Therefore, it is important to determine the impediments, confront them and overcome them to be able to implement the agreements in a way that contributes to achieving economic integrity among the region’s countries. The Gulf countries are still hugely relying on foreign workforce, while locals are modest contributors in this regard.
Furthermore, the educational systems have not managed to develop vocational capacities for the inhabitants of the region in various job sectors, and it seems that vocational education has not received proper attention since the onset of formal education in these countries.
The Gulf countries are witnessing a high population growth, in addition to the annual flux of thousands of youths to the job market without having the right competencies to occupy jobs and main professions done by foreigners. This reality calls for serious and balanced attention from the ministries to the development issues. Moreover, clear economic policies must be adopted and realistic executional mechanisms must be set, in addition to undertaking operations to fulfill the goals within set time frames.
Read More: http://www.al-monitor.com/pulse/business/2013/12/gcc-gulf-economy-energy-oil.html