The Gulf Cooperation Council (GCC) states should keep seizing on any opportunity to diversify away from oil for income generation. Such opportunities often entail the wholehearted support of private sector investors willing to assume a greater role in local and regional economies.
Certainly, led by the UAE, the GCC bloc can collectively call on 35 per cent of the world’s sovereign wealth funds, as per the June estimates put out by the Sovereign Wealth Institute. That of the UAE alone surpasses the $1 trillion (Dh3.67 trillion), followed by Saudi Arabia, Kuwait and Qatar, at $743 billion, $410 billion and $170 billion respectively.
Clearly, the money is there for the authorities to invest in the infrastructure across the board, thereby paving the way for sustained economic development, including creating additional fiscal revenues from diverse sources. Other ensuring benefits from such public investments include creating employment opportunities for locals.
The GCC already commits sizeable amounts on hard infrastructure development projects, with special emphasis on rail networks in the current phase. Certainly, some are faster — and more willing — than others to commit resources on development projects, something demonstrated in the many performance rankings available out there.
Happily, private sector investors throughout the GCC are noted for their willingness to invest considerable resources in support of public projects. For instance, there are many instances of Saudi entrepreneurs taking fairly heavy exposures in such enterprises and this bodes well for the kingdom’s economy.
Aside from size, the Saudi economy offers local establishments unhindered access to millions of pilgrims converging on the country to visit the holy shrines for Haj and Umrah. Supply creates its own demand as far as pilgrims are concerned.
Conversely, investors from Kuwait are known to take on an international outlook, which in part reflects the complexities concerning local conditions including the constant squabblings over priorities between the elected parliament and the appointed government.
According to recent statistics by the GCC’s Secretariat General, the petroleum sector accounts for 49 per cent of the GDP within the six-nation grouping. The sizeable figure partly relates to importance of Saudi Arabia, compromising between 43 to 46 per cent of the group’s GDP. Oil accounts for half of Saudi GDP based on current prices, in turn influenced by the fact that the kingdom is the world’s largest oil producer and exporter.
Bahrain is the least dependent on the oil sector, in turn representing 24 per cent of the GDP. With limited oil reserves, Bahrain undertook efforts, starting in the 1970s, to set up Aluminium Bahrain (Alba), as part of the broader development of its manufacturing sector.
The UAE followed suit with the oil sector now representing 32 per cent of the country’s GDP, on the back of multiple diversification initiatives. These include, transportation, hospitality, financial services, retail and whole and a host of other areas.
The Expo 2020 in Dubai should further strengthen the services sectors throughout the country, thanks in part to the projected completion of Etihad Railway, a scheme that combines freight and passenger network.
Still, a thorough study by academician Martin Hvidt on diversification efforts confirms that of all the GCC states, Kuwait is still the most dependent on the oil sector on the back of accounting for 91 per cent of treasury revenues, 90 per cent of exports and 45 per cent of GDP.
This is unhealthy but no surprise at all given the realities concerning the Kuwaiti economy, with the government playing a primary role in economic management. Suffice to say that 90 per cent of Kuwaiti nationals work for the public sector, clearly an unsustainable phenomenon.
