GCC Nations Should Use Private Sector to Diversify Economies

Article Summary
To maximize petroleum revenues and ensure sustainability, Gulf countries must diversify and develop their national economies.

Any objective look at the Gulf countries’ economies reveals that these countries, particularly the Organization of the Petroleum Exporting Countries (OPEC) member states, will continue to export oil and will remain dependent on oil revenues for decades. Therefore, in order to improve the contribution of revenues from non-oil sources to the public treasury, there must be real strategies to develop economic activity and strengthen non-oil activities.

The important question is how to develop these activities in light of increased public spending and social burden due to population growth and a high level of consumer need. Gulf countries, which have conducted studies for years, are required to develop visions to diversify economic activity.

Many businesses and activities are unable to achieve economic feasibility without support from public funds. Therefore, adequate economic activities are those that can rely on the private sector’s initiatives and its ability to take prudent risk, and those that can rely on in-country manpower in addition to marketing their outputs in local, regional and international markets, based on the standards of competitiveness.

For years, Gulf countries have tried to encourage businessmen to invest in processing or services industries by facilitating conditions, and providing them with diverse support. One of the most important government incentives is that the state has become the private sector’s partner in a number of businesses. [This step] has secured the necessary funds by providing funding through traditional or specialized banking systems, and by allocating land to the enterprises, which has enabled them to use electricity, water and other infrastructure facilities at low prices.

However, this strategy did not obtain significant economic or social returns. This required a reexamination of concepts in order to find better possibilities for diversified economic activity. Many enterprises and businesses have encountered economic challenges and often a lack of feasibility. This has prevented donors from fulfilling their commitments due to their inability to achieve the necessary revenues. Many businesses were unable to recruit adequate numbers of local employees and remained dependent on migrant workers.

The diversification of economic activity in countries relying on oil revenues as the main source of income is certainly a complicated and difficult process. Yet these countries cannot create a promising economic future without embarking on this difficult process and coping with major challenges. Economic decision-makers must deeply consider the available options and figure out how to enhance their contributions to feasible economic activities.

Developing countries had previously tried to give importance to industry in their economic programs and plans. Yet, for many reasons, these countries did not harvest any positive results, and many industries have become an economic burden. Gulf countries certainly do not have the appropriate elements to establish fruitful processing industries. However, they do have potential in industries that depend on raw materials derived from oil or gas. Therefore, petrochemical and petroleum industries must be given the appropriate attention. These industries may be more feasible in specific — not all — Gulf countries, given the required coordination among regional countries in the industrial strategy.

These industries rely on skilled workers, which highlights the importance of training a national cadre to fill the vacancies. In addition, the products of these industries must reach global markets. This stresses the importance of negotiating with consumer countries in order to liberalize the trade of oil and petrochemical products and [the importance of] annulling the existing protection systems in such a way as to create a competitive atmosphere that enhances the chance to market the products.

Services remain the most important economic activities in Gulf countries, where good living standards provide important capabilities for marketing the services. The government controls core activities in the services sector — such as electricity, water supply, health care, education and transportation. Privatization programs could completely or partially transfer these services to the private sector. Privatization would allow the national private sector and specialized international companies to create partnerships in these services, which would improve quality and the use of modern techniques.

The aforementioned activities can create better opportunities to employ nationals after they undergo rehabilitation through education and training programs. A privatization program of these services would give the government the opportunity to impose income taxes on companies and provide significant revenues to the public treasury, as well as to increase revenues from non-oil sources. The tax may not be implemented immediately; the governments may give private companies additional time to make good profits and employ these profits to expand or upgrade their businesses. Yet after a while, taxes must be collected.

More importantly, diversification of economic activity in the Gulf countries requires optimum use of human resources, which represent the most important economic factor, given that these countries lack all other resources except for oil and sea. Although a century has passed since the beginning of formal education in the countries of the region, education outputs still do not meet aspirations. It is time for the educational system to become more capable of graduating the adequate human resources to create diversified economic activity capable of coping with all potential economic developments, both locally and internationally.

Found in: oil, opec, gulf countries, gulf, gcc, economic