Economic diversity across a wide range of profitable sectors is the key to a strong sustainable economy and a higher standard of living; it creates jobs, encourages the development of new knowledge and technology and helps to ensure a stable political climate. Diversification can also reduce a nation’s economic volatility and increase its real activity performances.
The hydrocarbon-rich GCC countries face sizeable challenges in diversifying their oil and gas-dependent economies. After enjoying the past few decades of unprecedented growth and wealth, now is the time for these countries to begin transforming their economies.
In the face of exhausting resources, GCC countries are looking to the robust, diversified economies of Hong Kong, Singapore, New Zealand, Norway, and South Korea. They are seeking the efficiency and sustainability that cannot be achieved by maintaining a single commodity-based economy.
A recent Booz&Co. study regarding sustainable development in the GCC elucidated three key findings linking diversification and economic stability. The analysis revealed that: (1) GDP should be distributed across several sectors; (2) concentration is not inevitable in hydrocarbon-rich economies; and (3) labor distribution should support growth.
How do these results match up to the Gulf’s economic reality? (1) The GCC’s record high inflow of capital cannot be considered inherently sustainable because of the dependency on the hydrocarbon sector’s (rather than a wide variety of sectors) fortunes in the marketplace; (2) in order to avoid a natural tendency toward economic concentration, nations rich in any single commodity must be particularly attentive to the issue of diversification, and (3) the oil and gas sector, producing 47% of GCC countries’ GDP, provides work for only 1% of the employed population.
Evidently, there are large gaps for GCC countries to fill in order to diversify their economies. However, they have seen the writing on the wall: where will we all be post- oil? They are on their way to finding out.
