Economic Diversification in the GCC: Past, Present, and Future

Staff Discussion Notes, December 23, 2014

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Economic Diversification in the GCC: Past, Present, and Future

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Bibliographic details

• Authors: Tim Callen, Reda Cherif, Fuad Hasanov, Amgad Hegazy, Padamja Khandelwal
• Published: December 23, 2014
• Series: Staff Discussion Notes
• DOI: https://doi.org/10.5089/9781498303231.006

Abstract / Summary

• The economies of the six Gulf Cooperation Council (GCC) countries are heavily reliant on oil.
• Greater economic diversification would:
  • reduce exposure to volatility and uncertainty in the global oil market,
  • help create jobs in the private sector,
  • increase productivity and sustainable growth,
  • help create the non-oil economy needed when oil revenues start to dwindle.
• The GCC countries have implemented many standard policies to promote diversification, including:
  • reforms to improve the business climate,
  • development of domestic infrastructure,
  • financial deepening,
  • improvements in education.
• Despite these measures, success to date has been limited.
• The paper argues that the “missing link” in GCC diversification strategies is realigning incentives for firms and workers.

Key Findings and Analysis

• Incentive imbalances currently favor non-tradable production because:
  • firms benefit from the easy availability of low-wage foreign labor,
  • firms benefit from rapid growth in government spending,
  • producing non-tradables is less risky and more profitable for firms.
• Labor market and public sector features discourage nationals from private-sector entrepreneurship and employment:
  • continued availability of high-paying and secure public sector jobs discourages nationals from pursuing entrepreneurship and private sector employment.
• Increased diversification requires fixing incentives for both firms and workers.

Policy Recommendations and Measures

• Measures to begin addressing incentive issues could include:
  • limiting and reorienting government spending,
  • strengthening private sector competition,
  • providing guarantees and financial support for firms engaged in export activity,
  • implementing labor market reforms to make nationals more competitive for private sector employment.

Publication and Metadata

• Staff Discussion Notes
• By Tim Callen, Reda Cherif, Fuad Hasanov, Amgad Hegazy, Padamja Khandelwal
• December 23, 2014
• Pages: 32
• Volume: 2014
• Issue: 012
• Series: Staff Discussion Notes No. 2014/012
• DOI: https://doi.org/10.5089/9781498303231.006
• Stock No: SDNEA201412
• ISBN: 9781498303231
• ISSN: 2617-6750

Staff Discussion Note: "Economic Diversification in the GCC: Past, Present, and Future" (2014) — authors Tim Callen, Reda Cherif, Fuad Hasanov, Amgad Hegazy, Padamja Khandelwal.

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