Gulf countries heeding pandemic’s lessons on diversification

Tucked away among the impressive virtual reality, star speakers and commendable organization during the fourth year of the Future Investment Initiative (FII) last week was the distinct understanding that the pandemic has provided an opportunity, rather than a challenge, to the Gulf economies.

Prior to 2020, efforts to diversify the economies centered on hydrocarbons were limited; no major drivers of economic growth had convincingly replaced the enduring role of the region’s black gold as its foremost economic pillar. The pandemic, however, seems to have become a watershed moment. Its related economic downturn and collapse in oil prices has meant that governments in the region have had to reassess and accelerate their strategic plans to diversify.

The collapse in oil prices has highlighted the very real precariousness of one-trick pony economics, leading policymakers to revisit efforts to diversify. The basic experience of the pandemic in the Gulf has been to expose the central tenets of rentier economics for their fallibilities: The heavy reliance on the exploitation and export of natural resources, and the import of products, services and knowledge, as well as foreign labor. Ample wealth has meant that domestic innovation and productivity have been delayed. However, with traditional sources of revenue depleting, Gulf states will have to change course dramatically in order to thrive. The coronavirus disease (COVID-19) crisis is a harsh reminder of this reality and it was encouraging to see this policy imperative at the center of discussions at the FII, which was one of the few international gatherings to have gone ahead despite the obvious global circumstances.

In spite of the clear economic challenges posed by the pandemic, certain other facets of COVID-19 provide an opportune moment for structural reforms to take place. Decreased hydrocarbon revenue, stunted large infrastructure projects, and closed borders that have left many migrant workers at home make for a perfect collection of factors to address the lack of innovation, cumbersome legal structures and over-reliance on the state.

Given the Gulf states’ commendably swift responses, the virus itself has not been devastating. What would be devastating, however, was if the moment were not seized to push hard for the economic reforms and diversification that are so urgently needed. The Omani Ministry of Manpower has made headway in this regard, introducing a visa ban on expat workers in the private sector for approximately 100 roles, including jobs in sales, marketing, IT, accounting, finance, management, human resources, insurance and the media. In Qatar, efforts to diversify have been given a new lease of life. The pandemic has focused minds on Qatar National Vision 2030, more than a decade after it was written, as the government seeks to provide unprecedented support to small and medium-sized enterprises to generate revenue away from natural gas.

In many respects, this mindset has only grown in importance. Where past forums in the region espoused innovation and competitiveness as buzzwords that encapsulated a vision to diversify, the arguments at the FII were incredibly more targeted. There was no doubt among those present that education is the only way that the economic transformation can come about and allow for growth to be sustainable. Despite the Gulf economies having held up relatively well overall, investments in some diversified industries have yielded limited results and the impact of low oil prices has overwhelmed any potential gains from such diversification. This situation can only embolden governments to redouble their efforts in “hydrocarbon-proof” industries such as technology, telecommunications and healthcare, and create the right conditions for innovation. At the center of this is improving the quality of education and increasing the emphasis on learning. Lightning-fast internet alone will not guarantee success in potential growth areas such as renewable energy and digital infrastructure, though a smart and world-ready workforce will.

Rapacious Chinese energy consumption was heralded as the great savior as the West slowly began to turn its back on hydrocarbons. This attitude, however, is incredibly short-termist. China is predicted to reach peak demand this decade, at which point consumption will fall and, with it, the revenues of exporters. The onus, therefore, is on the Gulf economies to reform immediately. Through learning the lessons of the dual shock of low oil prices and COVID-19, they can take the necessary policy decisions to build economies that are truly diversified, resilient and based on education.

Source: https://www.zawya.com/mena/en/economy/story/Gulf_countries_heeding_pandemics_lessons_on_diversification-SNG_199527646/

 

Share this page Share on FacebookShare on TwitterShare on Linkedin
Close

Listen to 'Radio FCCIB' Videos & Podcast

Radio FCCIB is the new program launched by the French Chamber of Commerce & Industry in Bahrain, asking 3 questions to its members