By Pratap John
The GCC region’s non-hydrocarbon sector growth performance has been above that of other oil producers or advanced economies between 1980 and 2009, shows a research done by three senior IMF economists.
Growth in Kuwait, Qatar and the UAE during the period was at par with that of India and China, says a book entitled Macroeconomics of the Arab States of the Gulf co-authored by Ananthakrishnan Prasad, Raphael Espinoza and Ghada Fayad.
The sectors that contributed most to non-hydrocarbon growth (and that increased their share in the real GDP) were the manufacturing sector in Bahrain, Oman and Saudi Arabia (driven by petrochemicals), the construction sector in Oman and Qatar and the transportation sector in Kuwait, Oman, Qatar and the UAE. The financial sector also grew strongly in Qatar and the UAE.
The “push for diversification was successful” in the UAE where the share of the oil to GDP decreased by more than 20% in real terms, although in nominal terms oil GDP grew faster than non-oil GDP.
The share of hydrocarbon production in real GDP also decreased in Bahrain and Oman, but this is explained as much by the limitations of oil resources as by growth in the non-hydrocarbon sector.
In Qatar, the book said, gas production “increased dramatically”, driving the reduction in the share of the non-hydrocarbon sector in the economy. On average, the diversification efforts have paid off as non-oil growth reached high levels and was relatively symmetric across sectors, but oil production still accounts for more than 50% of GDP in Kuwait, Oman, Qatar and Saudi Arabia.
Diversification can also be assessed by looking at the structure of exports. For the GCC (Gulf Cooperation Council), as for other resource-rich countries, non-hydrocarbon export competitiveness may be undermined through the Dutch disease effect. Despite the push for diversification across the GCC and their advantageous ability to alleviate bottlenecks through access to a perfectly elastic supply of foreign workers, hydrocarbon exports still overwhelm non-hydrocarbon exports, the bulk of which are energy-intensive and subsidised manufactures.
Prasad told Gulf Times in Doha yesterday that the book, which was a result of years of research undertaken at the IMF, discussed constraints to growth in the six GCC countries.
“Constraints to growth across the GCC come from low productivity and ‘inefficient expenditure’. For meaningful diversification, inefficient expenditure such as subsidies and wage growth must be curtailed. At the same time, you are not giving incentives for the private sector to grow… or for nationals to grow in the private sector,” he said.
In her foreword, IMF managing director Christine Lagarde said, “Some of the region’s challenges are clear. Commodity exporters such as the GCC often run the risk of over-reliance on their natural resources, eventually resulting in a resource curse. This can originate in inefficiencies in government, or the mismanagement of volatile national income.
“Despite these challenges, the region has so far managed to use its oil wealth to provide services for its citizens and attract the foreign workers and capital needed for the infrastructure developments that will lead to quality-of-life improvements.”
The book was released during “The Euromoney Qatar Conference” yesterday by Qatar Central Bank Governor HE Sheikh Abdullah bin Saud al-Thani.
Prasad presented a copy of the book to HE the Prime Minister and interior Minister Sheikh Abdullah bin Nasser bin Khalifa al-Thani.