Oil rates have
dropped to $80 per barrel from around $100, which now raises the question
whether these economies will be able to withstand the tests of time. Will these
economies be able to flourish in an environment of fixed terms of trade?
This will depend
on the condition in each nation. However, all the countries are bound by the
need to increase generation of productive jobs and to improve skills and
productivity of the workforces. Despite progress in economic diversification in
some nations, this accomplishment will not be enough to offset the operational
challenges. Dependency on the oil and gas sector has hardly changed in these
countries.
Economic
diversification may seem to be moving quickly, between 2007 and 2013 GCC
non-oil GDP developed by 7 per cent per year, which surpasses the growth of a
mere 2 per cent in the oil and gas sector. Nevertheless, the share of oil and
gas sector in the GCC economies’ GDP has increased during the past 10 years,
primarily because of the climbing oil prices in the period, which increased the
minimal value of oil output.
Analysts believe
that the diversification that has taken place is to sectors that rely on
inexpensive hydrocarbon feedstock. GCC governments have formulated a plan to
expand their economy away from oil and gas, which has boosted investment. The
investment ratio of these nations has grown from 21 per cent of GDP in 2011 to
around 24 per cent in 2014.
A number of
projects are in the pipeline and these projects will account for nearly 155 per
cent of 2013 GDP, with just Saudi Arabia planning on projects worth $1.1
trillion. But the other investments in infrastructure may not point directly to
diversification or sustainable development.
The major
hindrance to diversification lies in the lack of education, skills and jobs.
The poor quality of education results in poor development of skills and a lack
of innovation in the economy, and this can be seen in the number of patents
registered that originate in the GCC. The effects of an unskilled population
are also reflected in the little money that has been spent on research and
development.
GCC nations can
be regarded as the world’s weakest performers in primary as well as secondary
school levels, accompanied by nations like Yemen and Ghana.
Thus, education
continues to weaken the region and GCC’s plans of boosting investments into
human resources should gain utmost importance. It seems like GCC members spend
much more on infrastructure than any middle/high income nation, while
expenditure on education is far less when compared to several other countries,
excluding Saudi Arabia and the UAE.
This attitude
towards education has led to reduced labour participation levels, especially
among women. But when GCC girls surpass boys in global mathematical exams, then
lower female participation levels cannot be explained by poor academic feats.
Labour force in
GCC is growing by 3-4 per cent every year but the skills of the workforce
remain underdeveloped, which makes higher employment rates and greater economic
growth much more difficult to achieve.
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