Press Release: The IMF Middle East Center for Economics and Finance, Jointly with the Arab Fund for Economic and Social Development, held a Symposium that Discussed the Path to Economic Diversification in Kuwait and Other GCC Countries

IMF News, May 16, 2016

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Canonical URL: Press Release: The IMF Middle East Center for Economics and Finance, Jointly with the Arab Fund for Economic and Social Development, held a Symposium that Discussed the Path to Economic Diversification in Kuwait and Other GCC Countries

Press Release No. 16/223
Date: May 16, 2016
Organizers: The IMF Middle East Center for Economics and Finance (CEF) jointly with the Arab Fund for Economic and Social Development (AFESD)
Venue: Arab Fund’s Headquarters
Moderator: CEF Director Dr. Oussama Kanaan
Panelists: Professor Ha-Joon Chang (Cambridge University), Dr. Reda Cherif (IMF), Dr. Fuad Hasanov (IMF)

Immediate policy impetus: decline in oil prices from above $100 to about $40 per barrel today.
Historical reference: risk of a return of the oil slump of the 1980s–1990s, which previously led to unemployment, falling living standards, and heavy indebtedness in affected oil-exporting countries.
Challenge emphasized: addressing low oil prices in the current context of high government spending and rising expectations about the provision of jobs and income transfers.

Core ingredients of successful economic diversification strategies:
- Infrastructure investments conducive to private sector growth.
- Human capital investments conducive to private sector growth.
- Development of sophisticated non-oil export industries.
Comparative experience:
- Past diversifiers cited: Brazil, Korea, Malaysia, Singapore.
- Lessons: countries must experiment and learn from others; incentives for firms and workers need realignment to develop technologically sophisticated export-oriented industries.
Nature of diversification:
- Diversification does not need to build on existing economic activities; new, often unrelated activities can emerge.
- When related to traditional industries, diversification requires products to become increasingly sophisticated and move to more advanced stages of manufacturing.
- Choice between service-sector versus manufacturing-led diversification depends on potential productivity gains.
- The frontier between services and manufacturing is fading; service sectors more strongly linked to manufacturing can yield greater productivity gains.

Fundamental change required: oil exporters must change the prevailing economic model toward becoming innovative economies.
Policy actions:
- Address government failures and market failures that hinder movement toward dynamic sectors.
- Realign incentives for firms and workers to move into more dynamic, technologically sophisticated sectors.
- Focus on developing dynamic export markets; diversification can begin with a limited set of industries.
- Facilitate entrepreneurship.
- Prioritize education and social development as central pillars of diversification.
- Implement a highly selective industrial policy tailored to the country’s particular economic and social conditions.

Audience composition: participants from the public sector, the banking and business community, academia, and representatives from international and donor organizations.
The floor was opened for audience discussion, reflecting a broad range of interests.

IMF Communications Department; Media Relations: E-mail: media@imf.org; Phone: 202-623-7100