For the past few decades, economic diversification has been high on the agenda of all the countries in the Gulf Cooperation Council (GCC): Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). Even before oil prices dropped in mid-2014, their leaders recognized that their economies relied too heavily on the oil and gas industry. Nonetheless, although the share of non-oil GDP has steadily increased in each of these countries, their exports and government revenues remain concentrated on oil and gas. Returns from these sources have long funded spending on infrastructure and social services and paid public-sector wages. The drop in oil prices has thus resulted in a fiscal crunch, adding urgency to the need to transform.
GCC leaders already know that economic transformation is not a simple undertaking. It requires a holistic approach incorporating a variety of measures. For example, Saudi Arabia’s Vision 2030 — a sweeping diversification blueprint sponsored by Deputy Crown Prince Mohammed bin Salman and released in April 2016 — aims to rebalance the Saudi economy away from oil. It sets ambitious goals for the next 15 years: to increase the share of non-oil exports from 16 percent to 50 percent, and to raise the private sector’s contribution to GDP from 40 percent to 65 percent. Such comprehensive plans are critically important not just for economic growth, but also for the ambitions of millions of young people in the region.
As they implement measures to see their strategies through, GCC countries should keep in mind three key principles. The first is upgrading the strategic management of local enterprises so these organizations become world-class. The second is using digitization to leapfrog over the early stages of economic development. The third is building a skilled and “future-proof” labor force that is capable of continuous learning.
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