The Benefits of Economic Diversification for GCC Economies
In the recent past, GCC member states have tried to diversify their economies. UAE in particular has over the years invested heavily in regional trade; aluminum industry; transport sector; modern infrastructure and in tourism (Callen et al., 2014). Bahrain, on the other hand, has invested in aluminum smelting, finance sector and service industry (Hvidt, 2013). However, although this is the case, majority of the member states have continued to rely heavily on oil and gas exports. Though this practice has proved profitable for the member states, the practice threatens the economic stability for the region. As a result, it is the high time the member states diversify their economies to deal with future threats.
This topic is important to GCC member states because if they would diversify their economies, they would shift some of their focus away from oil and gases. By so doing, they would support a broad array of industries that would provide income-generating opportunities to their growing populations. They would also counter threats posed by the market volatility of the oil industry and the rise of shale gas resources. More importantly, they would deal with some challenges posed by depleting oil and gas resources in the region. Based on this understanding, GCC member states should diversify their economies because over relying on oil and gas exports threaten economic stability for the region (Malik, 2016).
Oil Exports Are Risky
Studies show that almost every GCC member state relies heavily on oil and gas exports. Saudi Arabia which has the largest oil deposits in the region generates the biggest share of its income from oil exports. Kuwait and UAE equally generate the biggest shares of their national incomes from oil as well whereas Qatar generates much of its national income from natural gas. Although in the 1980s and 2000s oil proved to be profitable to the GCC member states, oil market is a volatile one (Sturm et al., 2008). Oil price may go up or go down at any time based on its demand and the economies for the member states would be affected negatively. Even if Qatar would be considered to be on a safer side for investing heavily in natural gas rather than investing in oil, the state would still safer if dynamics in oil industry would change. Overall, oil and gas are non-renewable sources of energy meaning that they will deplete at one time. In addition, incomes from oil and gas reserves may fluctuate at any given time making it risky for the member states to over rely on oil and gas.
Natural Resources Deplete
Natural resources are bound to deplete at one time or another. Oil and gases are no exception. As a result, at one time they will deplete. Studies show that oil reserves for Oman and Bahrain are likely to deplete sooner than they are likely to do for other member states (Cherif, & Hasanov 2014). In particular, studies show that oil deposits for Bahrain are almost depleted. While this is the case, it is expected that oil deposits for Oman will deplete in 2025; Qatar is expected to deplete its oil deposits by 2052 whereas Saudi Arabia is expected to deplete its oil deposits by 2080 (Sturm et al., 2008). Furthermore, UAE is expected to deplete its oil deposits in 2113 whereas Kuwait is expected to deplete its oil deposits by 2131 (Hvidt, 2013).
Although oil reserves for Saudi Arabia, Kuwait and UAE are predicted to last longer than they will do for other member states, it is obvious that they will deplete at one time or the other (Cherif, & Hasanov 2014). This being the case, it would be reasonable for the GCC member states to diversify their economies. If the member states were to do this, they would minimize the risks that come with investing heavily in one particular source of income. They would also create employment and increase exports from other sectors. Furthermore, they would industrialize their economies.
Their prices may Fluctuates
Even if it would be reasonable for GCC member states to continue investing in oil, it would also be reasonable to remember that oil market is volatile (Sturm et al., 2008). Largely, oil market depends extensively on the demand and supply of the oil in the market, which even if the member states can influence significantly, they do not control it. More importantly, other countries in the world have in the recent past discovered oil reserves in their territories. At the same time, recently, there has been concerted effort towards investing heavily in renewable sources of energy. Consequently, even if there are emerging economies such as India that would require oil to industrialize, evidence suggest that such economies might utilize renewable sources of energy rather than depending heavily on oil. If this would happen and it is highly likely that it would happen, the demand for oil would not increase. This being the case, oil prices would not go up as one would expect. If anything, oil price might go down or remain at its present position. This would either slow economic growth for GCC member states or even destroy them. In order for the GCC member states to save their economies from such an outcome, the member states should consider diversifying their economies.
Oil Exports Are Risky
In all fairness, over reliance on oil exports for national income would be a risky business. It would not only affect national income if oil prices were to go down, but it would also slow down economic growth for the member states. Although oil prices have in the past gone up rather than going down, there is no guarantee that this would happen in the future. While this is the case, some member states are on the verge of depleting their oil reserves. And as this takes place, the member states are experiencing significant population growth (Sturm et al., 2008). Saudi Arabia in particular has the highest population at 23 million people. The significant population growth will automatically require more resources and more jobs especially for the youths. In order to counter this threat, the member states should diversify their economies so that they would provide more jobs for the youths.
As the GCC member states consider diversifying their economies to enhance economic stability for the region, industrialization would be an important area for them to invest in. This would help the member states to create employment in other sectors. It would also help the member states to increase their exports from other sectors other than oil sector. Doing so would obviously enable the member states to earn more revenue from exports thereby it would strengthen the economy of the region. For the GCC member states, industrialization would involve investing in other industries other than investing in oil industries. This would create employment in sectors such as manufacturing, service industry and in construction industry.
This industry would not only create employment among the member states, but it would also help the member states to diversify their exports. Diversifying exports would mean that the member states would stop over relying on oil as a source of income. By so doing, the member states would be prepared to tackle every eventuality that might result from fluctuation of oil prices. In this respect, this is the high time GCC member states consider investing in manufacturing industry as a way of diversifying their economies.
Oman has in the recent past invested in this industry and although the industry has not developed fully, the member state is enjoying the benefits of diversified economy. Saudi Arabia, on the other hand, is in the process of investing in manufacturing industry and even if the state has not invested heavily in this industry, the state is considering becoming the regional leader in this industry (Sturm et al., 2008). If this is to happen, Saudi Arabia will diversify its economy. This will create employment in Saudi Arabia. It will also increase exports from manufacturing industry thereby help the member state to earn more revenue from the industry. Other states in the region should follow suit to promote economic stability for the region.
A number of GCC states have also invested in service industry. Even if some people have argued that the industry is not a sustainable one because GCC nationals prefer high paying jobs, the fact remains that the industry has enabled the member states to diversify their economies. More importantly, the industry has created employment among the low skilled people (Cherif, & Hasanov 2014). Based on these facts, it would be reasonable for the GCC member states to consider boosting financial sector, tourism and transport sector.
In the recent past, a number of states such as UAE and Bahrain have invested in this industry and the practice has proved profitable to them. With the help of this practice, Bahrain in particular has positioned herself as a financial hub for the region. The state has also invested in Islamic banking, transport services and tourism. The UAE, on the other hand, has equally invested in tourism, transport services and financial sector. By so doing, these states have minimized their overdependence on oil exports. UAE in return has emerged as a strong member because of diversifying her economy. With respect to this fact, other member states such as Saudi Arabia, Kuwait, and Oman should consider investing heavily in service industry (Almutairi, 2016). In particular, the three member states should consider investing heavily in tourism because they are yet to do so. If the member states were to invest in service industry, they would create employment for their citizens.
Construction industry is also an important industry in the process of industrializing the region. Although some member states have invested in this industry, a lot is yet to be done. For this reason, the member states should invest in this industry to create employment for their citizens and enhance development in the region.
Social and Economic Changes
If GCC member states were to diversify their economies, they would definitely deal with some challenges they face today. As far as this issue is concerned, the member states have begun to experience some challenges for not diversifying their economies. Oman is a good case study. On her part, Oman is currently running a deficit budget for over relying on oil and gases. The deficit is largely attributed to the high number of citizens joining public employment (Mishrif, & Al Balushi, n.d). It is hoped that Saudi Arabia, which has huge oil reserves in the region, is likely to run into deficit in the coming years due to increase in government subsidies and salaries. In order to deal with these challenges together with other socioeconomic challenges, GCC countries should diversify their economies. Doing so would decrease unemployment in the region, it would also counter threats posed by shale gas and provide sustainability in the region.
Largely, economic diversification would spur economic growth in private sector. Economic growth in the private sector would definitely result to employment opportunities for the citizens. This means that governments would not be burdened by the high number of people seeking employment in public sector. Consequently, GCC member states should diversify their economies to promote economic stability for the region.
Counter Shale Gas
Over the last few years, studies have established that North America is rich in shale gas than any other part of the world today. Although China may have more deposits of shale gas than any other country, the fact remains that GCC member states do not have huge deposits of shale gas. While this is the case, USA, which is a major consumer of natural gas in the world today, has resulted to exploiting her shale gas deposits. If this is to persist given that other countries might shift their attention to shale gas, the demand for natural gas from GCC member states would definitely decline (Ramady, 2012). If this was to happen, the income generated from natural gas by GCC member states would definitely reduce. In order to counter such a challenge, it would be reasonable for GCC member states to diversify their economies so that they can counter the effects that shale gas might have on demand for natural gas.
Studies show that economic diversification is a sustainable process. It enables countries to utilize their resources effectively and even invest in areas that are considered risky. In order for a country or state to achieve sustainable growth, it should produce new goods. In addition, such a country or state should adopt and develop new technologies (Cherif, & Hasanov 2014). For this to happen in the Middle East region where majority of the member states belong to, the member states should diversify their economies. This means that they should stop over relying on oil and gases for exports and start producing new goods as well as adopt and develop new technologies. If the member states were to do this, they would experience social and economic changes in their economies. This would not only grow their economies, but it would also deal with socioeconomic challenges experienced by some member states. In addition, it would create employment in the region.
GCC member states should diversify their economies because if they continue over relying on oil and gases, the economic stability for the region would be affected in the future. There is no doubt about this issue because oil and gas deposits in the region will deplete at one time or the other. The writer has argued that it would be beneficial for the member states to diversify their economies because doing so would boost private sector that would create employment for the citizens. It would also be possible for the member states to counter threats posed by shale gas. The writer wants the reader to believe that it would be risky for the GCC member states to continue relying heavily on oil and gases; thus, it would be necessary for GCC member states to invest in other sectors other than in oil and gas industry. Although the reader may argue that the member states have diversified their economies, the writer wants the reader to believe that majority of the member states have not done enough. As a result, they should reconsider their effort towards this issue and put more effort.
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