The oil-exporting GCC states have long been in the middle of diversifying their economies from oil revenues. It has been the central theme of their major reforms, thus hoping to not only make themselves immune from oil price fluctuations, but also ensure that they are prepared for a future after fossil fuels.
Their economic resilience and sustainable development heavily depend on how successful they are in the shift from a volatile oil-based economy and how ready they are in a world without oil. In 2016, the UAE Government hosted a two-day retreat in Dubai to produce a road map for this era. Federal and local authorities highlighted the need to bring their attention to human capital, knowledge, and innovation to strengthen the non-oil industry.
The efforts already yielded positive results. According to the Economic Insight report by ICAEW, the UAE’s non-oil sector now accounts for almost 70 per cent of its economy and expected to increase by 3.6 per cent in 2019. Elsewhere in the GCC, other member states have similar initiatives.
Saudi Arabia has its own National Transformation Programme (NTP) embedded in its Saudi Vision 2030, while Oman, which has been repositioning itself as a hub for shipping and industry, has rolled out its “Tanfeedh” handbook to enhance major domestic sectors such as manufacturing, tourism, transport and logistics, mining and fisheries.
Non-oil activities in Oman are predicted to grow at 4.3 per cent yearly between 2016-20, with the contribution of the oil sector to gross domestic product (GDP) dropping from 44 per cent during 2011-15 to 30 per cent by 2020.
In Saudi Arabia, its mega-cities, some of which are still under construction, are seen to accelerate the Kingdom’s bid to reduce reliance on oil revenues, in addition to opportunities in industries such as port services, trade, leisure, tourism, manufacturing, and construction.
One of these mega-cities is the highly ambitious NEOM, which is reportedly going to run on 100 per cent renewable energy.
The introduction of the 5 per cent value-added tax (VAT) in Saudi Arabia and the UAE are seen as boosting the two countries’ bid to fortify its economy, achieve sustainable development, and diversify sources of income. Other Gulf states are expected to follow suit.
Kuwait has also been diversifying its economy by attracting more investments and simplifying land ownership rules, while Bahrain has a reputation as the region’s first post-oil economy by enhancing its financial, telecommunication and tourism sectors.
Diversifying their economies result not only in sustainable growth but new jobs being created and institutional quality further enhanced. Developing a model that is responsive to the changing times is imperative so that the region can protect itself from lower oil prices.
Nidal Abou Zaki is Managing Director, Orient Planet Group.