Digging beneath the surface: Is it time to rethink diversification in the GCC?
Rethinking Diversification: the sector dimension
Diversification efforts have relied heavily on governments recycling oil and gas revenues via the budget and public investment entities in the past. Now money is tighter and the urgency of diversification greater. There are three factors to consider in determining what strategies are most appropriate in each country:
- Which sectors have the most potential to stand on their own feet, without relying for the long run on government spending, subsidies and other support?
- Which sectors are likely to have the best linkages with the rest of the economy?
- Which sectors can create jobs that are substitutes for public sector employment for Gulf nationals?
Standing on their own feet
Government spending has been instrumental in developing a broad variety of sectors in the GCC. Read the full Growth Drivers 2.0 report
Could sovereign wealth funds enable faster progress?
During the oil boom of the past decade, the Gulf countries invested significantly more public money into their economies than in the 1970s. Budgeted capital spending was eight times higher in 2013 than in 2001. Additional public investment came from sovereign wealth funds and state-owned enterprises.
The next decade
The combination of lower oil prices and accumulated reserves creates a window of opportunity to refocus on speeding up the pace and adjusting the direction of diversification to ensure that Gulf countries remain secure and prosperous.
The dollar value
How much bigger might the GCC economy be if the entire region were to shift from todays 38% to reach the 65% diversification level found in the OECD?