Economic Diversification in the Gulf Region, Volume II

The chapter addresses some of the key challenges facing economic diversification in the six member states of the Gulf Cooperation Council (GCC). Although GCC countries have made huge strides in economic growth in the past two decades, they continue to struggle with major structural impediments that hinder their economic diversification, including the rentier state model of development, diversification outside the hydrocarbon sector, industrialisation and human capital development. It argues that these challenges are not specific to GCC, and that many developed and developing countries have encountered such challenges in different forms and degrees, depending on their economic systems and levels of economic development. It stresses that GCC countries have the economic, financial and human capabilities to address these challenges, if the political will allows for major structural reforms in the economic system. It highlights a number of case studies from Dubai, Singapore, South Korea, Japan, and Germany that are appropriate for reforms and policy adjustment in the GCC economies; these global experiences could provide new insights for policymakers in the GCC countries to overcome successfully similar challenges.

We examine the impact of natural resource rents on diversification in exports, in employment and in value added, covering up to 136 countries from 1962 to 2012. We find a significant negative relationship between resource rents and diversification. The results are heterogeneous across different country groups and resources; the countries of the Arab Gulf are not an exception as they follow the high resource-dependent group. Moreover, we find that the higher the resource dependency, the less likely the country would go into diversification through its development, compared to less resource-dependent countries. Instead, concentration grows rapidly. These results are useful to policymakers in resource-rich countries who should be aware of how their economy is likely to be affected by resource rents.

The overall objective of this exercise was to examine Oman efforts to diversify its economy utilizing oil resources by estimating the total factor productivity (TFP) of the oil sector and the non-oil sector. The overall results suggest that GDP growth is driven mainly by capital accumulation and labour employment rather than innovation and efficient utilization of resources. The contributing factors to GDP growth in the past 45 years of the oil era have been mainly labour and capital. In addition, TFP analysis shows that oil sector contribution to GDP growth was positive; however, non-oil contribution was negative. Such results give evidence that the productive structure will be adversely affected in the case of depressed oil income and in the eventual exhaustion of oil resources. To sustain growth technology, knowledge and skills must be increased through better education and training. In addition, policymakers must look into structural reforms, including policy and institutional reforms, that will liberalize trade, encourage foreign investment, and make the business environment more transparent and business friendly.

Since the 1980s, the UAE has pursued an economic diversification strategy to decrease its economy’s dependence on oil. While some emirates have diversified quicker than others, this diversification strategy has come at the cost of other important national objectives such as preserving the national identity and Emiratization. This chapter describes and analyzes the policy implications of the UAE’s economic diversification strategy and discusses trade-offs to pursuing economic diversification in its trade, manufacturing, finance, services, tourism and the defense industry sectors. The chapter concludes that success of the UAE economic diversification strategy relies on the government’s ability to incentivize Emiratis to leave the public sector and increase labor productivity in the private sector.

We examine the economic diversification model of Dubai. We argue that the uniqueness of Dubai’s model lies in its business openness and integration into the global economy, rather than oil dependency. In line with the common perception that there is a significant negative relationship between resource rents and economic diversification, we find that the decline of oil contribution to Dubai GDP from 5.48 per cent in 2000 to 1.4 per cent in 2013 could have been a facilitator rather than a hindrance to the city’s economic growth and development. In contrast with the prevalent views on various inefficiencies associated with resource rich economies, we also find that Dubai’s model of development rests on government leadership with specific governance and state entrepreneurship models, inward investment orientation, unhindered access to capital and labour markets, protectionism and legal dichotomy and policy of systematic diversification. This model offers a promising future for Dubai and provides some key lessons to be considered by other GCC countries with similar economic systems and conditions.

We explore the need to integrate sectoral learning and skills development into sectoral policies, particularly in priority sectors with significant potentials to contribute to economic diversification, whilst simultaneously moving towards sectoral specialisation. We first provide a circumscribed review of the creative sector as a potential employment-creating sector, specifically in the digitised creative segment in Iran, Saudi Arabia, and United Arab Emirates (UAE), focusing on the learning and upskilling required for innovating in the nascent creative sub-sectors. Secondly, exploring the in-situ learning episodes within a conceptual model, we point to the prominent use of skill webs as means of in-project upskilling and a resource for development of interprofessional learning and judgement capability which forms a core ingredient for innovation. Lastly, the final section briefly points to recent policy vistas and concludes.

The entry into foreign markets represents a challenge, especially for small- and medium-sized enterprises (SMEs), not least due to financial and human resource constraints. Despite the increasing popularity of international joint ventures (IJVs) as an internationalization strategy, their effectiveness has been generally under-explored, with researchers tending to focus on ventures established by large firms, the results of which are not entirely applicable to SMEs. Existing empirical findings lack consolidation and are plagued by conflicting criteria for the measurement of IJV success.

Integrating and evaluating existing research results with a relatively new and very promising method in economics in the form of a meta-analysis to identify crucial success factors for SME IJVs is the goal of the research work presented here. This chapter motivates for the problem, presents the results of the first steps and explores the definitions and construction of the comprehensive meta-analysis of existing research results, which constitutes the backbone of this research.

This chapter first looks at the shape and background of East Asia’s economic development model. Next, it compares situations in the GCC and East Asia and examines paths the GCC should take toward industrial diversification. It then looks at several case studies which, based on the above examination, could serve as models for the GCC while also considering how governments can contribute to the region’s industrial development. Finally, the chapter summarizes basic policy and concrete means of diversifying the GCC’s economy. In terms of concrete methodology, the chapter touches on general promotion of industry, strengthening and stimulating oil- and gas-associated industries through M&A, promotion of knowledge-intensive industries, and creation of the soft and hard infrastructure necessary to make these methods viable.

This chapter examines the current diversification challenges of the GCC countries and the Korean experience of economic breakthroughs in order to see how the latter’s footsteps can provide useful clues for the former’s planning of the next phase of their diversification toward sustainable growth. To that end, two exploratory questions are addressed in this chapter: One, why the Korean experience is a relevant example for the GCC diversification challenges? Two, what suggestions can be made from the Korean experience for the GCC diversification challenges? While answering the questions, this chapter employs a comparative analysis as an overarching methodological framework to underline the relevance between the GCC diversification challenges and the Korean experience of economic development.

This chapter analyses the similarities and differences between the GCC and Singapore with regard to economic diversification strategies. The key for a successful and, thus, sustainable diversification process for the GCC is to reduce the high dependence of the economic revenues away from the hydrocarbon sector. However, an ongoing concern is the continuing need of high foreign workforce that collides with the demands for greater employment opportunities for national citizens. The challenges of those nationalisation strategies will be examined at the example of the Sultanate of Oman.

Singapore represents one of the most sought-after models of an advanced diversified service economy. Albeit struggling with similar structural challenges in diversifying its economy and in dealing with a still high reliance on an international workforce, it could offer experiences with general features and practices for the strategic planning and implementation of the diversification process and the focus on education, research, development, and innovation to bring up own national workforce.