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.
Led by the UAE, the GCC bloc can collectively call on 35 percent 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 mark, 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 infrastructure across the board, thereby paving the way for sustained economic development, including creating additional fiscal revenues from diverse sources.
The GCC already commits sizeable amounts on hard infrastructure development projects, though some are faster — and more willing — than others to commit resources on development projects.
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.
Conversely, investors from Kuwait are known to take on an international outlook, which in part reflects the complexities concerning local conditions including the constant squabbling 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 percent of the GDP within the six-nation grouping. The sizeable figure partly relates to importance of Saudi Arabia, compromising between 43 to 46 percent of the group’s GDP. Oil accounts for half of Saudi GDP based on current prices.
Bahrain is the least dependent on the oil sector, with oil representing just 24 percent 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 percent 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.
Of all the GCC states, Kuwait is still the most dependent on the oil sector, with 91 percent of treasury revenues, 90 percent of exports and 45 percent of GDP coming from oil.
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 percent of Kuwaiti nationals work for the public sector, clearly an unsustainable phenomenon.