No option other than economic diversification

The Arab Spring has so far, with a few exceptions, failed to achieve any of its long term goals. The Gulf Cooperation Council (GCC) countries were left relatively unscathed.

This is primarily because they have far more diversified economies — they do not have as much oil as some of the other affected countries so have been forced to diversify, making them far more resilient.

The wave of peaceful protests quickly descended into violent war; with Syria a prime example of the complexities that face Middle Eastern governments and the many cultural and religious differences that need to be balanced. One of the chief drivers of the unrest was a lack of political legitimacy among ruling governments and a feeling among private citizens that they benefited little from public state wealth.

Some of the countries across the Middle East fared better and were shielded; this is particularly true of the GCC, with increased state spending and social packages resulting in lower levels of unrest.

The case for a strong and stable economic base is a strong one as it allows governments to serve their purpose and provides a legitimate license to operate.

A lot of this increased social spending was financed by oil and gas reserves. However, the petro-dollar will not be around forever, and even today the oil industry is a volatile sector to depend on.

It is therefore increasingly important that the Middle East starts to diversify its economic base and provide a platform for future growth and stability. Now is the time to invest the proceeds of oil wealth for the generation of tomorrow.

Economic diversification

Economic diversification is often a long and painful process; it involves heavy investment and in some cases, starting from the ground up. However, if managed and balanced with other dominant industries, the effects can be transformative.

A clear example of the benefits of economic diversification can be seen in Oman. While still heavily reliant on oil and gas, Oman has been trying to broaden its economic base and increase the contribution of other sectors such as tourism, finance and services.

Indeed, one of the main reasons the country avoided some of the strife seen in other Arab countries is down largely to the fact that in order to keep a happy and content population, Oman reinvested the proceeds of its economic growth into providing more, better paid jobs.

Thousands of opportunities were created across the public sector, which also provide indirect benefits in the form of a more supportive and effective civil and public services. This also has the benefit of gradually shifting the balance of work away from the oil and gas industry.

More must be done however; Oman’s economy is still largely dependent on oil and gas: around 40 per cent of GDP comes from this sector. However there is work underway to address this: 2013 saw a national milestone for Islamic finance in Oman as the first Sukuk was launched.

Muscat Securities Market has announced a new index for listed companies that operate according to Sharia principles. This development is a clear indication that Oman does not intend to rest on its laurels and will continue to place importance on developing other industries.

Job growth

Becoming a regional financial hub also provides indirect jobs in the form of support services.

Having a strong, diversified economic base also increases the amount of foreign investment that can flow in, driving jobs growth and encouraging bilateral trade. Foreign investment has the additional benefit of driving new ways of working.

It broadens the talent pool and gives people early on in their careers exposure to a different way of working. This ensures future generations have a broad skills base to lead in managing their country’s economy.

Governments around the world are attempting to diversify and ensure they have well-rounded economies. The UK has come full circle: from having re-aligned its economy towards financial services in the 1980s it is now attempting to re-balance it and increase manufacturing output.

There is a global race to ensure countries have balanced economies that meet the challenges of tomorrow. The Middle East must be in this race.

Making governments work harder for their citizens is what economic diversification is all about. If the Arab Spring has taught us anything, it’s that governments need to work harder to provide their people with a richer lifestyle. Economic diversification allows them to continue doing this, long after the last oil well has dried up.

The writer is the Chairman of the National Bank of Oman.