Economic Diversification in the GCC

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In all six Gulf Cooperation Council (GCC) countries[1], the bulk of government revenues comes from hydrocarbons. Despite the recent rise in the price of oil, some countries in the GCC face a harsh economic outlook due to unemployment, high debt levels, and strained financial markets. In addition to the socioeconomic challenges, GCC countries are likely to feel the increased impact of climate change over the next decades, as well as mounting geopolitical and security concerns. Shifts in U.S. policy in the Middle East; increased engagement from China; ongoing conflicts in Syria, Yemen, and Iraq; as well as tensions between regional powers provide increased impetus for inter-GCC dialogue, and coordination with international partners like the United States and the European Union.

Against this backdrop, the Hollings Center for International Dialogue and the Brookings Doha Center convened experts, scholars, and international organization representatives to discuss the incentives and disincentives for economic diversification in the GCC. Held in Muscat, Oman, in February 2019, the dialogue reflected diverse viewpoints that loosely converged around the following points:

  • GCC nations are at different points in the economic diversification spectrumwith varying levels of success.This new normal is disincentivizing leaders from implementing reforms that will have a hard impact on the incentive structures in the economy.
  • Incentives for the private sector are missing.Measures to address these incentive issues could include limiting and reorienting government spending, strengthening private sector competition, providing guarantees and financial support for those firms engaged in export activity, and implementing labor market reforms to make nationals more competitive for private sector employment.
  • Work culture needs to change in GCC countries, while labor market reforms are sorely needed.Young people’s sense of entitlement, regarding education as almost an unemployment benefit, and lax work ethics are impediments to maintaining high-quality human resources for a globally competitive private sector.
  • Leaders need to find ways to share wealth other than employing people in the public sector. Universal basic income or transitioning to a more conventional welfare state can be two models.

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